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Tuesday, October 25, 2011

Crossing the Robotic Chasm

Researchers at MIT Sloan School of Management found that investors consistently values certain types of  business models more highly than others. 
80% of total revenue from companies listed on U.S. exchanges comes from physical assets. Manufacturing — creating physical assets — generated about 57% of all company revenues. Manufacturers are generally highly valued by investors, with manufacturers who innovate even more highly valued.
  • 28% of all company revenues derives from landlord type transactions but with major differences in total stock market returns. Financial and physical landlords were the poorest performing of the common business models, while IP landlords were the second-highest performing. Contractors — a model that includes consulting firms and other businesses that primarily “rent out” human assets — had performance in the middle of the pack.
In recent years, investors have favored business models focusing on licensing intellectual property (such as Walt Disney’s business model) and a certain kind of highly innovative manufacturing (such as Apple’s).
Innovative manufacturers, who invest more than their industry average in research and development, are the top performers in the market. Apple is an example of an innovative manufacturer. Apple’s business model in 2008 was 86% manufacturer, 7% contractor and 7% IP landlord, and the results — products like the iPhone, iPhone apps, iPad, MacBook Air, iTunes — have paid big dividends. This is a powerful combination from an investor perspective.  In 2010 Apple´s total research and development expense was $1.8 billion compared with $1.3 billion in 2009.  The R&D expense of iRobot was $24,8 million in 2010 and $14,7 million in 2009. For the first nine month 2011 the R&D expense was $25,8 million.  

Explore more AAPL Data at Wikinvest
Investing opportunities: iRobot vs Apple
Google Finance: Apple vs iRobot 2001-2011 
Robotics companies, especially consumer robotics companies, are identified as highly innovative companies focused on R&D, hardware design and manufacturing. But so far very few have crossed the chasm (Geoffrey A. Moore) between the early adopters of the product (the technology enthusiasts and visionaries) and the early majority (the pragmatists). Market leader iRobot has outperformed high price pioneer Electrolux with the launch of the Roomba series in 2002. But since then no new, innovative consumer product has been launched. Two of the three original founders have left iRobot to start new robotics companies instead of driving innovation within the company.

Investors are still while waiting for disruptive innovations, that can lay ground of the next trillion robotics  industry. Despite billions of $/€/¥ of public and private investments in robotics R&D very few robotic spin-offs have survived outside the defense-robotics-industrial complex. The gap between research, industry and consumers has been to far to create a viable consumer robotics industry that can deliver consumer value like other high-tech industries.  
US Robotics Renaissance
Meanwhile the robotics R&D community continues feeding politicians and media with visionary road maps, robotic animations and prototypes to secure public funding. The latest U.S. robotics initiative NRI supported by the U.S. president with $40-$50 million annually is promoted as "a game-changer" (prof. Vijay Kumar),  "a vehicle to transform American lives and revitalize the American economy, (Helen Greiner, co-founder, iRobot, now president and CEO, CyPhy Works and president, Robotics Technology Consortium), a tool for  "repatriation of US manufacturing jobs" (John Dulchinos, president and CEO, Adept Technology). 
Robotic Cleaning Market 
After 10 years robotic R&D floor cleaning is still a robotic challenge and a great business opportunity for new solutions and new business models. According to U.S. Small Business Administration (SBA) the cleaning services industry is a $46 billion dollar industry, expected to grow 5.5%  annually with current business trends toward outsourcing and purchasing by two income families looking for more leisure time. Residential maid service is the highest requested service by women. The number of empty-nest households is growing and as these "middle age" households move into the 55-64 age bracket, they are driving the growth of domestic cleaning services.  Additionally, disposable personal income is expected to grow over the same period, further supporting demand.
iRobot valued the U.S. market for traditional vacuum cleaners (priced over $200) about $ 1 billion and has sold about 6 million units so far. New competitors such as Mint, Neato Robotics, Philips, Samsung, LG, may have some technical innovations but these are far from disruptive to replace traditional vacuum cleaners or residential maid services.
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iRobot announced Oct 25 its financial results for the third quarter ended October 1, 2011. Revenue for the third quarter of 2011 increased 28 percent to $120.4 million, compared with $94.2 million for the same quarter one year ago. Revenue for the first nine months of 2011 increased 17 percent to $334.7 million from $287.0 million last year. Net income in the third quarter of 2011 was $14.1 million, compared with $7.0 million in the third quarter of 2010. For the first nine months, net income was $29.6 million, up from $18.5 million a year ago.

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