Nanotechnology for the Average Investor
Investing in new technologies can be difficult due to a lack of quality information. As a result, the average investor is usually the last one to find new investment opportunities. Nanotechnology presents an interesting prospect for average investors; many publicly traded companies are exploring the use of nanoscale technology and engineering in many of their products. This article seeks to provide the average investor with a snapshot of publicly traded companies that have current nanotechnology pursuits. New breakthroughs are reported, and companies are analyzed with regards to their future performance due to the implementation of nanotechnology into their businesses.
By Vikram Joshi
Experts have dubbed nanotechnology the next technological boom. However, most people are only recently becoming aware of this influential research movement. A general definition for nanotechnology can be defined as science and technology that takes place at an incredibly small length scale, less than 100 nanometers (nm). Nanotechnology is characterized by the singular behavior of organic and inorganic materials at this length scale (1 nm = 10^-9 m). In terms of commerce, projections by the National Science Foundation suggest that the nanotechnology industry as whole could reach the $1 trillion mark by 2015. With all this hype, one may be curious as how to get in on the ground floor of this potential burgeoning industry.
First, a separation must be made between categories of investors. One group is classified as "angel" investors; they are wealthy individuals that provide seed capital for new companies. Most "angels" are already financing early rounds for private nanotech companies with investments ranging from $100,000 to $1 million. These private companies are usually formed as a commercialization of academic research or as spin-offs from corporate research and development labs. The other category of investor is the average investor. The average investor is one who has the ability to buy shares of publicly traded companies. In contrast to the "angels," the average investor does not possess the fiscal clout to offer early stage funding.
For the purposes of this article, I will focus on opportunities for the average investor. The average investor is likely unaware of publicly traded companies with a nanotechnology focus. I will present an overview of public companies, large and small, that have strategies involving nanoscale science and engineering. The report will detail several large corporations that have taken on nanotechnology pursuits as a means to propel their businesses into the next few decades. Additionally, I will cover some other smaller companies (<$1 billion market capitalization) that are almost pure nanotech in terms of their product offerings.
Before choosing potential investment opportunities, the average investor should become familiar with the focus of nanotechnology companies. Currently, most companies can be classified as having concentrations in nanoscale bulk materials, tools, or devices (sensors, memory, etc.). Until recently, nanoscale materials in the form of nanopowders, nanoparticles, nanotubes, etc. have been produced in small quantities. Recognizing the potential applications of such bulk materials, firms have ramped up synthesis techniques to produce anywhere from pounds to tons of these nanomaterials. The applications for these bulk materials vary from incorporation into highly sophisticated devices to more mundane consumer products. For example, nanotubes/nanowires are candidates for incorporation into integrated circuits while other nanoparticles are being implemented into textiles and cosmetics.
With any impending technology revolution, the tools that scientists utilize become absolutely necessary for furthering research. Considering that billions of dollars are presently flowing into academic and industrial research, the market size is vast for specialized tools that can probe the nanoscale. The tools that nanotechnologists use are able to investigate and manipulate objects on the nanoscale. Most people are likely familiar with tools like electron microscopy, which allows one to view features measuring in the few nanometers, but other tools exist, including various SPMs (scanning probe microscopy) that can perform many characterizations based on particular modifications.
The final category, devices, serves presently as the most immature phase of the nanotechnology movement. This category is a fairly broad in that it spans applications directed toward many industries such as, electronics, biotechnology, telecommunications, and energy. Specific devices could include, nanoscale memory, single molecule biosensors, solar cells, and optical networking components. Goal wise, this sector seeks to apply nanoscale science towards improving current products and to provide the stimulus for entire new product lines. This integration process will take 3-10 years and will likely begin with some type of hybrid architecture for devices, combining state of the art technology with standard fabrication techniques. Ultimately, pure nanotechnology devices will emerge and have their own novel methods for mass production.
The Big Guys
When selecting investment opportunities in the current nanotech space, there is no obvious winner. Multinational high tech companies have come to the realization that nanotechnology can be the savior to their aging product offerings and one day may be the force that returns them to the years of robust profits and high growth. Players like Hewlett Packard (HPQ), IBM (IBM), and Intel (INTC) have R & D labs with a nanotechnology motivation. Within the past year (2002), all three technology stalwarts have announced strategies to exploit one or more of the major discoveries of the nanotechnology revolution. While the performance of their stocks is not wholly dependent on their R & D pursuits, it is important for the investor to consider their recent achievements as omens for performance over the next 3-10 years; the discovery of a single fundamental application has the possibility for disrupting an entire industry and earning investors high returns.
HP, still finalizing its merger with Compaq, has done its best to adhere to its motto, "Invent." This past month, the HP Quantum Science division, lead by R. Stanley Williams, was able to create a memory system based on molecular electronics. Primary outcomes of this discovery include that the assembly can be read electronically and that the system is produced with a technique that lends itself to large scale production. Specifically, the memory prototype has a storage density of 64 bits and is produced by a process called nano-imprint lithography, a method where patterns are literally stamped out using a master mold. The details of the device reveal several telling achievements, the HP memory is 10 times as dense as current models, it incorporates connections just 40 nanometers in width, it implements switchable molecular elements, and it demonstrates logic functions. With regards to the entire memory industry, the HP memory trumps current DRAM and SRAM by its ease in rewritability and nonvolatility (memory is saved when power is off). This discovery is only a prototype but is critical in proof of concept for the HP team. In addition, the awarded patent for nano-imprint lithography provides HP with valuable intellectual property that could have applications beyond those at their laboratories. For instance, nano-imprint lithography could aid in the fabrication of components found in displays, biosensors, and patterned media.
IBM, through its devoted research philosophy, recognized nanotech's power as early as the mid 1980s. The Scanning Tunneling Microscope (STM) was developed at IBM and most technologically inclined people will recall the STM's famous picture of "IBM" written out in Xenon atoms [link]. Nanomanipulation of atoms with acute control is a fantastic accomplishment for a company known by average investors for churning out computers and servers. This foresight has not changed at Big Blue. Presently, IBM seeks to find nanotechnology alternatives to conventional memory and logic devices/microprocessors. Researchers at T.J. Watson Research Center in New York are working on developing self-assembled magnetic nanoparticles, in addition to other patterned media, as improvements over current silicon based memory. Additionally, their Millipede storage prototype received acclaim a few months ago [link]. In 2000, IBM, along with others, reported construction of carbon nanotube field effect transistors (FET) [link]. FETs made with silicon technology are the basis for today's powerful microprocessors. Nanotube FETs would allow further scalability of the transistor size, beyond those capabilities of silicon based systems. Smaller features on a chip translate into denser circuits, with faster signal processing. This discovery opens the door for Moore's Law (chip density doubling every 18 months) to continue for decades. In terms of production, leading scientists at IBM predict that carbon nanotubes will be included in standard CMOS design, subsequently providing a seamless transition from one technology to another.
Intel, in contrast to HP and IBM, has had more directed nanotechnology research. This philosophy has its advantages and disadvantages. The program has been beneficial in that Intel has been able to find ways to increase transistor density and performance in silicon by applying its research to "tweak" certain parameters (i.e. use of strained silicon, multi-gate transistors, high k dielectrics) [link]. At the end of this year, Intel will release its 90 nm chip platform, officially entering into the nanoscale regime. Unfortunately, all this effort will only keep Intel on top of the chip industry until 2010, at best. The reason is that the silicon process will reach its fundamental scientific limit around 2010, preventing it from further miniaturization. Another disadvantage arises due to undirected research taking place at competing R & D labs. Most of these labs have been exploring nanotechnology for the sake of pure science and now are beginning to see many real world applications (i.e. molecular electronics, flexible display technology, etc.). Intel has only recently been exploring the use of nanowire (silicon and carbon) interconnects and the self-assembly of molecules. Other bright spots include incorporating wireless communication into chips and the creation of environmental sensor networks. This late start puts Intel in the middle of the pack for now. Collaborations with top universities and increased R & D spending though could quickly restore Intel's position as an industry leader.
Small Companies, but Pure Nano
It may be hard to imagine, but there are companies out there that are nearly 100% vested in nanotechnology. These companies fall into the first two classifications for firms: bulk material producers and tool makers. The reason for their emergence makes perfect sense when one considers the initial implication of a nanotechnology boom. First with most industries, the least complex products are often the first to market because there is no effort needed to render the raw material into intricately ordered applications. Secondly, if researchers are to explore at the nanometer length scale, then they need tools capable of imaging, probing, and manipulating at the nanoscale, with nanomanipulation defined as controlled movement of nanoscale-objects or atoms. Thus, companies such as Nanophase Technologies (NANX), a materials producer, and Veeco Instruments (VECO), a tool provider, have already become examples of small public companies with a strong nanotechnology focus.
Nanophase is in the business of manufacturing large lots of nanocrystalline materials. These materials are more than just regular powders. The powders are made up of nanoparticles of a particular elemental composition, tailored to the needs of their customers. The company calls their method for production Physical Vapor Synthesis (PVS) [link]; it is where a series of thermal and reactive treatments are applied to a raw metal. Applications for their nanoparticles include various ceramic materials for use in non ideal environments, catalysts, and abrasion resistance. The most intriguing application is Nanophase's use of zinc oxide nanoparticles in sun screens. The zinc oxide blocks harmful ultra-violet light, and the size scale of the particles allows for a transparent sun screen residue. This product is already successful with the cosmetics industry. The outlook for Nanophase is somewhat positive; however, their business is reaching maturity. This prediction is normal for typical bulk materials companies; the market for specialty materials is often small, and better fabrication techniques and competitors drive down prices. The future growth of Nanophase relies on discovery of new materials and/or finding new applications for its unique nanoparticles.
Veeco Instruments is comprised of two major departments, process equipment and metrology tools. Currently, they are spread across a large spectrum of industries: semiconductor, data storage, telecommunications, and scientific research. The metrology division of Veeco, still referred to as Digital Instruments although the merger took place in 1998, is concerned with tools for nanotechnology. In research circles, Veeco is noted for having high quality Scanning Probe Microscopes (SPM). An SPM is a tool that uses a fine tip to scan a surface with the resolution of a few nanometers. The tip can be modified to perform tests for various characterizations (electrical, magnetic, etc.). The SPM is a necessary tool for anyone wishing to explore the nanoscale, and this makes Veeco's products high in demand. A price tag of $200,000 per SPM (or more depending on special features) does not deter researchers from purchasing this device. Understanding the needs of scientists, Veeco has launched modifications to its standard SPM in order to perform special tasks at the nanoscale. For example, the NanoManTM system allows users to perform nanolithography (patterning of surfaces) and nanomanipulation [link]. The tool's new functions demonstrate its necessity to a nanotechnology research lab; the system opens doors to new types of applications. Taking this into account, one concludes that there is still growth potential for Veeco. Their SPMs get substantially better with each generation, and they are consistently the trusted name in tools for most academic institutions. With more nanotechnology funding becoming available, more research centers will emerge needing to possess tools for operating on the nanoscale with ease and reliability. Thus, Veeco's Metrology group should perform well.
Other Players in the Nano Game
Many companies, in addition to the ones discussed above, are actively participating in the nanotechnology field with others soon to join in. For example, Japanese giant, Mitsui (MITSY), announced its intent to launch a large scale factory for synthesizing carbon nanotubes [link]. Similarly, the memory business is also one sector where nanoscale manufacturing is becoming commonplace. Firms such as Hitachi (HIT) and NEC (NIPNY) have broken the 100 nm barrier for their memory components [link]. Also, Hitachi has recently acquired IBM's hard drive division with its novel technologies in tow. Lucent (LU) and Philips (PHG), R & D kingpins of the 20th century, are poised to develop and introduce nano-based products in the next few years. Their focus includes the areas of high quality displays and molecular electronics. Even General Electric has announced a $100 million upgrade to its corporate R & D center where they will study, among other things, nanotechnology [link]. Biotechnology firms are continuing to explore nanotechnology in order to improve their testing machinery. For instance, companies such as Nanogen (NGEN), Cepheid (CPHD), Caliper (CALP), and Affymetrix (AFFX), which are all producing micron sized lab-on-chip, will add nanotechnology aspects to their diagnostic arrays in order to increase accuracy and through-put.
What to Walk Away With
Tool makers and bulk material producers will be the first to reap the benefits of nanotechnology. It is important to understand though that the nanoscale device market will be the one to drive the industry. It is also necessary to remember that the timeline for the implementation of nanoscale devices increases as a function of the complexity of the device. Right now, nanotechnology research is taking place at all scales of business, from startups to multinational corporations. For the concerns of the average investor, one must realize that nanotechnology breakthroughs at companies like HP and IBM will not cause appreciation in the stock price today, but will significantly affect the company's performance 3, 5, or 10 years from now. The best advice is (1) keep a record of R & D discoveries, (2) be aware of acquisitions of private nanotech companies by larger firms, (3) follow nanotech companies that recently go to IPO, and (4) convince yourself that this industry will happen; there is too much money, too many brilliant people, and too many other resources present. These factors will ensure some level of success. The only question that remains is when the average investor will reap the benefits of this technology revolution.
At the time of writing this article, Vikram Joshi was a masters student at Stanford University and was the author of the Joshi Nanotechnology Review, a monthly newsletter covering private nanotechnology companies. Upon graduation, Vikram seeks to be involved in the creation and operation of nanotechnology startups.