Friday, September 14, 2007

Robot Mania

The U.S. government ordered another platoon of robots for bomb-busting duty in Iraq and Afghanistan. Robotic Fx, Inc. (private) was the recipient of this order. The government has already tapped iRobot, Inc. (IRBT: Nasdaq), Exponent, Inc. (EXPO: Nasdaq) and Foster Miller (private) for robots in the past.

The robots built by Robotic Fx are not cold and calculating like of the movie robot,
The Terminator played by Arnold Schwarznegger. (No funny accent either.) They are fairly sophisticated. Robotic Fx calls their surveillance robot the Negotiator. It is operated by a joy stick. No wonder the military boys like these things. Playing with robots is also a whole lot safer than poking around with the toe of a combat boot.

It is understandable then why the military is not done with their robot shopping. The military is expected to order another 2,000 over the next four years.

Among the four robot leaders noted above, we have favored iRobot and profiled the stock in a recent issue of the Small Cap SEARCH newsletter. The iRobot share price started falling on news of the contract award. It was a disappointment, but iRobot has is not entirely dependent the U.S. military. iRobot has an entire line of domestic robots, including the dust-busting Roomba.

It also seems likely that iRobot will get another chance with the DOD. The company recently signed an agreement with
Taser International (TASR: Nasdaq) to arm some robots for the military and police. iRobot is also working with Boeing (BA: NYSE) to introduce a lightweight unmanned ground vehicle. It seems logical that it is only a matter of time before the military wants an armed robot. I’m thinking Johnny-Five (Short Circuit, 1986) with that awesome shoulder laser, but the army boys might prefer the old standard Robby (The Forbidden Plant, 1956). Robby knew how to make bourbon!

In the meantime, iRobot has profitability issues in due specifically to higher nickel costs for its domestic robots and generally to inadequate coverage of fixed costs. The company has also been investing heavily in research and development, all of which is expensed. Cash resources were $70.3 million at the end of June 2007, which should allay any concerns among customers that the company has the working capital to support production.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. IRBT was featured in the Small Cap SEARCH newsletter with generally favorable commentary.

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