Tuesday, March 27, 2012

Profits in Zero Landfill Business Model

Humor me with one more article on the information technology asset disposition (ITAD) sector.  In the last two posts I highlighted CloudBlue (Private) and Insight Enterprises (NSIT:  Nasdaq).  Insight is a highly profitable IT integrator for enterprise.  A key step in the process is the disposition of the old electronics infrastructure.  CloudBlue provides reverse logistics for manufacturers, processing returns and repairs. 

I began this review of ITAD because of a concern for the lack of environmental responsibility by Apple, Inc. (AAPL:  Nasdaq) with its fast-paced product launch cycle.  What happens to all those iPod, iPhones and iPads when the next new product comes out?

One of the other members of our new eCycling group in our Mothers of Invention Index, Hobi International (private) is in the thick of consumer electronics recycling.  They say Apple products are not re-entering the recycling or refurbishing circuit.  Only about 20% of Hobi’s work is with Apple products.  One reason, of course, is that Apple products are relatively new to the marketplace and have not reached the end of useful life.  Consumers are keeping their old products even as they buy the latest iPod of iPhone model.

Hobi is eager to get ahold of Apple products.  As with every other electronic item that comes to Hobi, the Apple product is evaluated for resale.  Margins are particularly high on Apple products the second time around. 

All electronics products that cannot be resold by Hobi are broken down into parts for repairs or recycled.  The company meets the Responsible Recycling (R2) standard for electronics recyclers.  One element of the R2 standards is to maximize the reuse of working equipment and components and the recovery of commodity materials.  Hobi exceeds that by not letting anthing go to a landfill. 

Hobi is a private company but we believe the company is profitable.  For that matter we suspect most of the other electronics recyclers are profitable as well.  Thus investors cannot expect Hobi to come to the private or public capital marketplace anytime soon. 

One thing we do expect is consolidation in the sector.  Our list of eCyclers is only fifteen strong.  However, there are over 180 different companies that have me the R2 standards.  We believe the companies in our eCycler group are the most likely consolidators. The consolidation could trigger a need for capital and then it could be good chance for investors to get involved.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. CloudBlue, Insight Enterprises (NSIT) and Hobi International are included in the eCycler Group in Crystal Equity Research’s The Mothers of Invention Index.

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