Robotics: the emerging human side

Robots, till recently, had limited applications, largely confined to the automobile industry, for materials handling

and for welding; in all these cases robots perform fixed functions for repetitive tasks. A new generation of

robots has vision capabilities and is more mobile which enables flexible automation. Industrial applications have

expanded into packaging of food items, painting in automotive and non-automotive industries and for

compliance with FDA regulations in pharmaceutical manufacturing.

The sales figures for fourth quarter of 2006, ending 31st December, revealed an increasing trend towards the

growth of the non-automotive market for robotics. According to statistics published by the Robotics Industries

Association, a total of 12,765 robots worth $904.2 million were sold in North America in 2006, a decline of 30%

in unit sales and 22% in dollar value from 2005. The worldwide sales of North American robotics companies'

were 13,791 robots worth $958.4 million, down 29% in units and 22% in revenue. Non-automotive orders

accounted for 44% of total orders in 2006, compared with just 30% in 2005.

A pre-requisite for the mass deployment of robotics in industry is the availability of a broad range of software

applications for robotics. In the past, this could not be done rapidly in the absence of a common platform,

similar to the Windows operating systems available for PCs, as the bedrock for the development of new

applications. Microsoft has launched Robotics Studio which provides programming tools to facilitate the

development of new applications.

Two companies, iRobot and Braintech, look promising as they have products that have been accepted in the

market and are poised to scale up. iRobot (Nasdaq: IRBT), a spin-off from MIT, manufactures consumers

robots. Its Roomba model is used for floor vacuming and Scooba for floor washing. It also manufactures military

robots. PackBot, is used for reconnaissance such as detecting lurking dangers in urban warfare and for bomb

disposal. More advanced applications in the military market, unmanned ground vehicles for combating terrorism,

are in advanced stages of development and are expected to be substantial contributors to its future growth.

iRobot entered into a partnership with Boeing to accelerate the commercialization of its unmanned vehicle

products which is expected to be reflected in higher profits in the coming quarters.

Revenues from military robots have grown faster than home robots over the last year. For the quarter ending

31st March, revenues from military robots increased by $5 million in 2007 as compared to 2006 or by 33.6%

while they decreased $3.8 million or by 16% for home robots. Total revenues grew marginally to $39 million

from $38 million in 2006 or by 3.3%. The decline in sales of home robots was due to decline in sales of Scooba

floor washing robots which also have a higher unit sales price. Net loss increased from $3 million in 2006 to $6

million in 2007 as gross margins on military contracts are lower and research and development costs are higher.

For the year ending 31st December, net income increased to $3.5 million in 2006 from $1.5 million in 2005 and

to $0.15 per share in 2006 from $0.13 in 2005. The stock price declined from a peak of $25 in October 2006 to

its current level of $16 which has created a buying opportunity for long-term investors.

Briantech (OTC BB: BRHI.OB) specializes in the development of vision systems, the eyes of a robot, that help to

guide the movement of robots. It has developed 3D digital cameras which correlate pixel data of images with

physical location and help to drive the movement of robots. The data from images is processed by its

eVisionFactory software system which determines the position of an object of interest and facilitates its

manipulation by the robot. In addition, the eVisionFactory system will incorporate an Internet based technical

service and support system that will connect wirelessly with factory workers and managers to help them

communicate with the staff at Braintech. As part of its strategic alliance with ABB (NYSE:ABB), Braintech’s vision

guidance systems are incorporated in ABB’s hardware, the TrueView robotic system, for sale in the automotive

industry.

The agreement to exclusively use Braintech’s eVisionFactory for ABB’s TrueView in January 2005 was also the

time when mass deployment of these systems after the tentative launch in 2002 which stretched till 2005. The

revenues of the company jumped from $1.2 million in 2005 to $1.8 million in 2006 while gross profits increased

from $1.1 million to $1.7 million in the same period. Net loss, on the other hand, increased from $2.7 million to

$6 million.

In May 2006, Braintech signed a new global channel partner agreement with ABB which ensures minimum sales

of $10.5 million ($1.5 million in 2006, $3.5 million in 2007 and $5.5 million in 2008) which has helped the

company to earn operating profits in first quarter of 2007 and it expected to earn positive net profits for the

year 2007 and 2008. ABB is also investing $300,000 for the development of a bin picking robots. The benefits of

the expanded agreement with ABB is reflected in vastly improved financial performance in the first quarter of

2007 ending 31st March with revenues of $0.67 million compared to $0.23 million in the same quarter of 2006.

From an operating loss of $0.48 million in first quarter of 2006, Braintech was able to achieve an operating profit

of $0.05 million. The loss per share declined from $0.03 per share in 2006 to $0.02 per share in 2007. The stock

has moved from its one year low of $0.22 in August 2006 to a peak of $0.44 in May 2007. This is a high risk

stock and is recommended for those who have the stomach for exceptional risk. The technology story of the

company is compelling and it has a strong channel agreement with a guaranteed minimum level of revenues till

2008.

Disclosure: the author owns stock in Braintech.