2012/07/30 3 Comments
Unless someone can bring data to the contrary, we should treat this issue as thoroughly decided against the conventional wisdom. As we saw previously, robotics companies do not need a lot of fixed assets. Now, we will see why people who blithely repeat the conventional wisdom that robotics companies are capital intensive are wrong–even if they claim robotics companies are hiding their true use of capital.
First off, robotics companies’ balance sheets look like technology companies’–the internet kind, not the aerospace/industrial kind. Robotics companies have lots of cash and relatively little else.
Second, robotics companies have gross margins that even companies that don’t make stuff would envy. The robotics gross margin would probably be even higher if iRobot and Aerovironment were not defense contractors. There is a lot of pressure to bury as much expense as allowed into the cost of goods due to defense contract rules. Intuitive and Cognex’s margins are around 75%. They are even beating Google on gross margin!
Although, it does appear that robotics companies have a bit longer cash conversion cycle than the basket chosen for comparison here, their cash cycle appears to be in line with other complex manufacturers. Plus, the robotics companies are holding so much cash their management may just not really care to push the conversion cycle down.
Look at the cash required to sell aircraft though! Manned or unmanned it looks like it takes forever to get paid for making planes.
Although robotics companies have physical products, the value of a robot is in the knowledge and information used to create it and operate it. The materials are nothing special. Consequently, these companies look like part of the knowledge economy–few real assets, lots of cash, and huge attention to their workforce. Next time someone tells you robotics companies are capital intensive, ask them to share what they’re smoking–it’s probably the good stuff–because they aren’t using data.
One thing that a venture capitalist may mean when he says that robotics is capital intensive is that it generally takes a long time and lots of money to develop a viable product in robotics. This may be true, but it is not really the same thing as being capital intensive. This observation should cause a lot of soul-searching within our industry. What the venture capitalist is telling us is that we–as an industry–cannot reliably manage our engineering, product development, and business structures to produce financial results.
This is why the conventional wisdom is dangerous. It suggests that the lack of investors, money, and talent flowing into our industry isn’t our fault and there’s not much we can do about it. That is what needs to change in robotics. We need to get better at management. We need to start building companies quicker and producing returns for our investors. If we do that the money, talent, and creativity will start pouring into industry. Then robotics can change the world.
Notes on Data and Method
Data Source: Last 10-k
Accounts Receivable = All balance sheet accounts that seem to be related to a past sale and future cash, so accounts receivable plus things like LinkedIn’s deferred commissions.
Cash + Investments = All balance sheets I could identify as being financial investments not required to operate. Assume all companies require zero cash to operate.
Did not account for advances in cash conversion cycle.