If the movie "The Graduate" was filmed today, a young Benjamin would probably receive this advice from Mr. Braddock: "I want to say three words to you: M2M, 3D Printing and augmented reality. There's a great future in these areas. Think about it. Will you think about it?"
These disruptive technologies have generated quite a bit of attention lately, but are still in the early stages of their development and have the potential to blossom into major industries just like plastics 46 years ago when "The Graduate" was released or the Internet in the 1990s. Each one of these technologies can be used by both private individuals and corporations in a number of industries, one of the many reasons why estimates for their potential market size range from the billions and up.
3D Printing: Modeling Profits
For example, 3D printing has the potential to be an $8.4 billion-in-revenues market in 2025, up from $777 million in 2012, according to Lux Research, with the majority of the applications in the automotive, medical and aerospace industries. Long term, it may reshape the manufacturing ecosystem. In the near term, it will have the most impact for manufacturing products that are made in small volumes, require high customization and are more cost-tolerant, Lux reported.
3D printers utilize liquid or powder materials and other chemical agents to print products by repeatedly depositing thin layers of materials that are bonded together, layer by layer. It is used in aerospace, automotive, medical and consumer product fields, among many other industries. The technology first emerged in 1988 but only entered the mainstream in the past year or so as 3D Systems (DDD) and Stratasys (SSYS) began to sell their products to consumers, and as both stocks generated quite a bit of attention from the media and investors.
Enthusiasm was further fueled in February by the initial public offering of ExOne (XONE) in February, which finished up 47% on its first day of trading. In media reports CEO Kent Rockwell explained that what distinguishes ExOne from its competitors is that its products use a wider range of materials to print products. These materials provide the ability for ExOne printers to make production-grade objects and castings out of stainless steel, bronze, glass, silica sand and ceramics.
ExOne focuses primarily on printers for large industrial companies with big capital spending budgets, such as aerospace, automotive, heavy equipment and liquid and gas transmission. The company makes four different types of 3D printers, ranging in price from about $100,000 to $1.4 million a piece. It also sells supplies and associated products needed for 3D printing, along with to providing services, training and technical support.
In a recent report, J.P. Morgan Analyst Paul Coster wrote that 3D Systems is a leader in the group, with sales of about 1,000 professional systems in 2011. Citing the Wohlers Report 2011, Coster wrote that 3D Systems captured more than 15% of industry-wide unit sales in 2010. He forecasts that the industry will expand at a 20% compound annual growth rate (CAGR) through 2015, declining to a 15% CAGR for 2015-20, and he expects 3D Systems to grow with (and largely define) the market.
However, Coster thinks the current stock price of $45 is a bit rich because it represents a multiple of 41.3 times his estimated 2013 earnings per share of $1.10, or what he terms "a peak multiple." As a result, he estimates that the stock will end 2013 at a lackluster $38.50.
That bodes well for Organovo Holdings, Inc. (ONVO), a three-dimensional biology company focused on 3D bioprinting technology, though the company is still in the red. For the three month period ended March 31, 2013, the company posted a loss of $16 million on sales of $215,000. The stock has climbed over 100% in the past six months from $2.13 to $4.41.
M2M: Machine-To-Machine or the "Internet Of Things"
Canaccord Genuity technology analyst Michael Walkley describes the Machine-to-Machine (M2M) market, or the "Internet of Things," as the design for inclusion of network connectivity into a broad range of machines, devices, and assets and the subsequent use of and monetization of the data collected from them. In simpler terms, M2M involves use of wireless technology and applications to create communications networks in buildings, electrical grids, homes, manufacturing, health care markets and many others.
Walkley has written about many practical ways that M2M technology could improve efficiency. In buildings, for example, M2M could integrate security, maintenance, electrical and water systems for better management. In the home, M2M technology could enable consumers to efficiently control and optimize usage of appliances, electrical and water systems. In health care, the technology could monitor patients wearing implantable monitoring devices regardless of where they are.
M2M: Difficult To Understand
The M2M market is diverse, fragmented and relatively immature, according to Walkley, since the Internet of things targets a broad range of machines and devices in a diverse range of markets. As a result, it's been difficult for investors to understand. Moreover, analysts' projections for growth have fallen short. But in time, industry trends "should unlock strong M2M growth over the next several years, leading to accelerating connected device growth in the latter half of this decade," said the Canaccord report.
Alternatively, suppose that you own a factory with many different production machines operating around the clock. When any one of the mechanical systems begins to show signs of failure or require maintenance, M2M technology can provide a service technician with not only a service notification but also the exact nature and location of the problem.
Walkley thinks several M2M-focused companies provide investors with attractive long-term investment opportunities, such Sierra Wireless (SWIR), Telit (TCM.L), CalAmp Corp. (CAMP), Numerex Corp. (NMRX) and Wiless Controls Inc. (WILS).
Sierra Wireless is bundling common M2M services into products like consumer devices, motor vehicles and energy meters, leveraging its AirVantage™ M2M Cloud Platform that simplifies M2M deployment. Numerex provides a broad range of M2M products in industries ranging from security, asset tracking, vehicle intelligence, industrial monitoring, network services, supply chain management, and custom solutions.
The share price has fallen nearly 24% from $13.78 to $10.51 as of the market close on May 29. Investors may have been disappointed with the first quarter due to 8% drop in revenue and a 9.4% increase in inventory compared to the previous quarter, but the company should benefit from global spending on wireless communications infrastructure this year.
Market researcher IHS forecasts that spending will rise 4.7% this year to $44.7 billion, and then slow to 2% growth in 2014 and in 2015.
CalAmp Corp. has acquired several small "Software as a Service" software companies. These acquisitions has given the company access to wireless applications that track company owned vehicles (fleet tracking) and applications that track vehicle usage to determine premiums for usage-based vehicle liability insurance.
Wiless Controls Inc. is a sub-$5 million company that has already developed and tested an end-to-end M2M solution that's being commercially deployed. With applications in credit management, equipment monitoring and pay per use, among other industries, the company's plug-and-play cellular gateway works around the world and comes pre activated thus avoiding the need to negotiate cellular contracts. In short, it's the industry's only all-in-one, plug-and-play cellular gateway designed to dramatically simplify M2M deployments. This is a pure speculative play with great risk accompanied with potential riches.
The Augmented Reality industry is another relatively new segment that is gaining quite a bit of attention. A Juniper Research report estimated that augmented reality (AR) applications, which usually involve scanning an image with a smartphone to access multimedia content, will generate close to $300 million in 2013, with paid downloads accounting for most of the revenues. This is up from $82 million in 2012.
Augmented Reality has received a huge boost from Google's (GOOG) new Project Glass, announced in 2010, that will allow users to don a smart pair of glasses, basically a smartphone that is worn like a pair of glasses, activating prompts through voice commands. To see the device in action, just search "Google glass" on youtube.com. Other companies that have AR technology include Qualcomm, Inc. (QCOM) and Nokia Corp. (NOK) that has introducing smaller AR projects now on the market.
Even large companies are recognizing the huge potential in AR. Apple, Inc. (AAPL) has a patent for a Video Telephonic Headset, and Microsoft Corp. (MSFT) is exploring the design of augmented reality lenses to be used in facial recognition applications for police and military agencies. Developers are working on potential applications for sporting events, concerts, gaming, gambling, along with educational and medical programs.
One of the meteoric rises in the world of augmented reality software is Infinity Augmented Reality Inc. (Infinity AR) (ALSO), which is known for its platform that can connect Google's Android Glasses to an iPad or iPhone, but the company is more than that. It recently put out a video that shows just some of its extraordinary applications the company provides including the use of advanced facial, mood, and image recognition using Infinity AR's augmented reality digital eye wear.
The video was viewed more than 1.4 million times in just the first week. With a revamped management team that includes CEO Enon Landenberg at the helm, and Moshe Hogeg, the CEO of Mobli as one of the directors, trading at less than 50 cents. It is considered a speculative stock with great risk accompanied with enormous potential for great reward.
For investors it's important to be knowledgeable of disruptive technologies. Therefore it is important to learn about augmented reality and it may be prudent to get in early before the release of Google Glass, or as Mr. Braddock advised, "Think about it. Will you think about it?"