Robotics capital intensive?! What are you smoking? Don’t believe it.
2012/07/30 3 Comments
Robotic manufacturing is not capital intensive, contrary to the popular wisdom. (Looking at you HBS.)
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
Method:
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.
Do you know anyone thinking about the future of aviation?
2012/10/29 by Robert Morris Leave a comment
If you do, please make an introduction for me.
I’ve been thinking a lot about the future of aviation lately. I’m trying to write a major piece for Patrick Egan at sUAS News and also thinking about this for reasons related to my business. I’m not sure that we in the unmanned aviation community have done enough to think about what the future of the aviation industry is like. Clayton Christensen’s Seeing What’s Next has a great discussion of disruption in aviation, but even though it was written in 2004, it makes nary a mention of unmanned aircraft. Steve Morris at MLB Company also was kind enough to have lunch with me last week and talk about what he sees coming.
Photo Credit: DARPA / DTIC.mil
Hypothesized Developments in Aviation from Unmanned Aircraft:
-Aircraft building, particularly on the low end will approach a commodity industry more analogous to PCs or cellphones than current aircraft building paradigms.
-Unmanned aircraft companies (both builders and operators) are going to look more like software or networking companies than they are going to look like industrial companies, this has implications for both human resource practices and the capital structure of the companies.
-Scheduling, routing, and planning will be done according to the new paradigm. Currently in aviation, everything is optimized around getting the most out of any particular flight hour or unit of plane time. Unmanned flips this on its head and allows for the aircraft to be treated like other tools that wait on the main job. Don’t know when you’ll need the plane up? That’s okay, we’ll park it in the sky (maybe doing a lower value mission) until you need it. Want to go from point A to B? Great we’ll take you there, directly, when you want to go. We will not worry about crew duty cycles, hubs, or returning the plane to its home base.
-Large airports will loose their centrality to the system–this is not to say they will experience a decline in traffic, but rather, they will not be the key limits on a network-like system of small airfields and ad hoc landing or operating sites (think more like a heliport than an airport).
Predicted Market Effects:
-Differentiation and customization will likely become the norm in unmanned aircraft operations. Most airlines are pretty undifferentiated, but when the business customer is going to tie their ERP system to their aerial service provider’s dispatch system and automatically task aerial missions based on orders, sustained relationships and differentiated services are going to be much more meaningful.
-Data gathering / reconnaissance is likely to switch almost entirely to unmanned systems after the FAA changes the rules.
-Air Cargo is going to be significantly changed, mostly at the interface between trucking and air, with more work being done by air and less by trucking.
-In the long run personalized aviation, whether that is passenger aviation or other types of aviation consumption is going to be the big development. Aircraft of today are like mainframes of the 70’s. Only anointed experts who get to go into the restricted area can operate these machines. Unmanned aircraft are going to be like PC’s, so cheap and easy to use that anyone can have one. The possibilities here are quite remarkable. Data collection, aerial work, cargo, and passenger transport are likely to feel the effects of this shift.
-Long haul, passenger, mass transportation will be the last segment to be effected. The first segments to be effected will be small, light-weight, short duration applications.
So what else?
I don’t really have a clear idea of how this effects incumbents. It will definitely be change. On the one hand, I think that the big guys at the top of the market will be fine. I don’t expect Boeing or the airlines to disappear. On the other hand, I don’t think that axis will have the control over aviation that they do today. They will be more like bus companies and builders in the large automotive industry.
The cult of the pilot will be diminished (as it already is in military aviation) and air travel will continue to be democratized. I believe that we are witnessing something akin to the introduction of the automobile. Prior to the automobile, mechanized transportation had been too expensive and hard to use for anyone that was not an expert. Prior to aerial automation, aircraft were too expensive and hard to use for anyone but an expert. That’s changing, if we can hurry up the FAA, we have an amazing industrial explosion ahead of us.
Filed under Aircraft, Commentary, Economics, Policy Tagged with air carrie, airbus, aircraft, airport, automation, aviation, boeing, carrier, economics, FAA, future of aviation, regulation, robot, UAS, unmanned, unmanned systems