Robots have been a theme of science fiction for nearly a century, and a gleam in investors’ eyes for about half that time. As with many such secular themes, especially technological ones, public excitement and the vision of possibilities can outrun real options for investment. Promises of dramatic opportunities are almost always overdone and premature, but nevertheless, some more humble, less hyped, and more profitable entrants in this field could be set to benefit. Below we note several social and technological inflection points that may make robotics a more attractive opportunity for investors with some patience and a medium- to longterm outlook.
DARPA’s Robotics Challenge
A closely-watched event that has showcased the best in cutting-edge robotics technology is the annual Robotics Challenge (DRC) run by the Defense Advanced Research Projects Agency (DARPA). The trials in December showcased robots from many teams, mostly government and academic -- Drexel University, NASA’s Johnson Space Center and Jet Propulsion Laboratory, and Carnegie Mellon.
Notably, though, the best performer in December was the entrant from Japanese company SCHAFT, Inc. And SCHAFT was one of eight robotics companies acquired by Google ($GOOG) in a targeted pounce in December 2013. The others were Redwood Robotics, Industrial Perception, Bot & Dolly, Holomni, Boston Dynamics, and Meka Robotics -- covering a swath of robotics specialties from arms to vision. Interested readers can watch the SCHAFT robot performing some challenging tasks here. We immediately thought of the potential uses for such a robot in emergency situations too hazardous for humans to endure.
The success of GOOG’s entry into the DRC is notable because a private company is now outpacing the traditional bastions of robotics R&D -- government and research universities.
Inflectors for Wider Adoption
Robots have long been staples of manufacturing companies with high capital expenditure (capex). Automobile manufacturers are a prime example; the Tesla ($TSLA) plant in Fremont, CA is a showcase of robotic production.
This level of robotics has been dominated by companies such as Swedish ABB Ltd ($ABB), as well as Fanuc Corporation (6954) and Kuka AG (KU2G), which manufactured some of the robots used in Tesla’s plant. Now, though, robotics are beginning to become accessible to small and mid-sized companies that lack the funds used to automate huge factories.
Open-Source Makes Robotics Available to Small and Mid-sized Companies
Willow Garage is a research lab and incubator in Menlo Park, CA, which was started in 2006 by Scott Hassan, an early GOOG employee. Other staff include former academics from Stanford. Willow Garage has spun off a number of companies, including Industrial Perception and Redwood Robotics -- which were both acquired by GOOG last year.
Willow Garage has pioneered the “Robot Operating System” (ROS) which is, in essence, a universal opensource robotics software platform. Because this system is open-source, robot designers have been able to cooperate in the same kind of community that built the Linux operating system, which is the foundation of GOOG’s Android system. Like Linux and Android, the ROS can be used with almost any hardware platform, which provides great flexibility and allows the growth of a broad ecosystem of developers.
Xbox Sparks Off-the-shelf Components
The ROS provides the platform, adapted and expanded by a global community of code-writers. At the same time, sensors and components such as Microsoft’s ($MSFT) Kinect XBOX sensor have been repurposed and used as off-the-shelf components. Thus we have the arrival of products like ReThink Robotics’ Baxter -- a $25,000 two-armed robot easily programmed by non-technicians. ReThink’s Mike Fair taught it to brew a pot of coffee in a few hours.
Stealing Jobs or Boosting Productivity?
Arguments about the effect robots will have on employment are complex and vexed. Some analysts see robots as further hollowing out the market for mid-level skilled workers. We continue to believe that ultimately, as has always been the case with technological advancement, temporary dislocations will give way to a changed labor market which benefits all participants.
Denmark is home to Universal Robotics, which makes inexpensive, easily programmed robotic arms that are designed to penetrate the market of small and mid-sized companies. Danish workers are among the world’s most expensive, which means that the critical component for growth is the increase of productivity, and productivity gains become progressively more and more difficult to secure as an economy advances. Broader adoption of robotics can help boost it. Universal Robots has experienced strong growth in Denmark and began expanding into the U.S. market in 2013.
Robot Stocks to Examine
Besides the companies we have mentioned so far, other robotics and automation companies that we find interesting include iRobot Corporation ($IRBT), which manufactures the Roomba vacuum cleaner, as well as robots for military applications, and Cognex Corporation ($CGNX), which manufactures analytical robotic vision systems for industrial production. The Robo-Stox Global Robotics and Automation Index ETF ($ROBO) is another possible approach to this theme.
(We do not recommend any of the securities mentioned in this article for investment at this time. We mention 4 of 11 them to readers as items of interest for their further research.)