Summary: iRobot Corp. is the unquestioned star of the robotics market. In the civilian market, it made domestic-chore robots credible and affordable to the masses for the first time. In defense it outmaneuvered giant contractors by delivering a robot that could fulfill a mission today rather than 10 years from now. Its fundamentals show how much of a strain the dual consumer-military role has put on the company, but its lack of competition and growth potential in its existing markets and in new ones far outstrips the risk.
iRobot Corp. is in an interesting position. It is one of the most successful robotics manufacturers outside the well-established industrial robotics sector. But it remains a tiny company in an asset-intensive business, selling against competitors with deeper pockets and more expansive research and development capabilities. It has succeeded, largely, by upending the assumptions of both customers and competitors that robotics products must be complex and expensive. iRobot products deliver good-enough performance in packages that are easy for customers to understand and manage. Their sophistication is in designs that make them inexpensive to manufacture and simple to maintain, and in controls that make complex behaviors easy for controllers to access.
In its best-known market segment, home appliances, iRobot is the only maker of home-automation systems to become a household name. It accomplished that with the robotic Roomba vacuum—a single-function device that worked slowly and fitfully through three generations of shipping product before the company got most of the bugs worked out. The 400-series and especially 500-series Roombas increased the efficiency of the units’ artificial intelligence and, more importantly, its battery life. The company also addressed the tendency of Roombas to leak dirt it had already vacuumed up, and improve its added ability to recover from showstopping obstacles such as thread and ribbons that could tangle its mechanisms.
iRobot’s PackBot started out as a stopgap — a simple, relatively cheap technology the Army could ship to war zones to help war fighters deal with roadside bombs, booby traps and buildings or other potential ambush zones. A stopgap was necessary because the unmanned ground vehicles and other robotically enhanced systems being developed by Lockheed Martin, General Dynamics and other mainstream defense-industry giants, were years away from any practical use. In 2002, the PackBot was inexpensive, sophisticated enough to do most of the job if properly supervised and, most importantly, was available.
In May of this year, two weeks before the Pentagon announced it had cancelled the $160 billion Future Combat Systems (FCS) program whose gaps in capability and delays created the opportunity for PackBot, it placed a $16.8 million order for more PackBots as part of a series of contracts that could total $286 million. iRobot’s total revenue for 2008 was $308 million, up almost a quarter from $249 million the year before. Not bad for a company that designs robot vacuums, floor scrubbers and pool sweepers in a Bedford, Mass. — a 19-year-old spinoff from MIT’s robotics engineering programs, and which started life designing toys for Hasbro.
Looking only at its fundamentals, iRobot is not an attractive investment. With a stock price of about $12.60 and a price/earnings ratio of 122 — more than four times the range a traditional money manager would consider to be overvalued — its stock price looks high. General Dynamics and Lockheed Martin, iRobot’s competitors in the military unmanned-ground-vehicle market, carry P/E ratios of 9.4 and 10.6, respectively.
iRobot’s 2008 profit was only 1 percent. Its return on equity — the amount of value it delivered in response to each dollar invested in its stock — was 2.6 percent. Lockheed Martin’s ROE was 51.7 percent, with a 7.3 percent net profit. General Dynamics’ ROE was 22.7 percent, on a net profit of 8.2 percent.
On the other hand, iRobot’s five-year-growth cycle is pegged by financial analysts at somewhere around 25 percent (compared to 10.9 and nine percent for LM and GD), it is swimming in cash, has no long-term debt, and is almost the only company to come out of the cancelled FCS program with better prospects than it went in.
Its Remotely Operated Vehicles (ROVs) have performed well enough on the battlefields in both Iraq and Afghanistan that Congress voted directly to contribute $2 million toward the development of the PackBot’s successor — the Robotic Platform Warrior 700 — for which iRobot was also awarded a $3.75 million contract by the U.S. Army Tank-Automotive Research, Development and Engineering Center (TARDEC).
An Object Lesson
In a military that appears ready to rely increasingly not only on ROVs, but on relatively simple, quickly developed robots, iRobot has become an object lesson for the defense industry in general, and military robotics in particular. Given that position and its leadership in the market for personal service robots, a market some estimates predict will grow to as much as $5 billion per year by 2015, the only real question is where the company should go from here.
According to Joe Dyer, president of iRobot Government and Industrial Robots and a former U.S. Navy admiral, the company will continue to follow both the consumer and military paths aggressively, while adding a third — the licensing of its proven robotics operating-system software to third parties. That business has yet to prove itself, and iRobot has yet to commit to it. But if it happens, software licensing could become a solid third pillar of the company’s business.
iRobot, like many other robotics companies, is interested in the burgeoning market for robots designed for everything from elder care to security to building guides, as well as innovative industrial or business-operations applications such as Kiva’s warehouse-automation systems. It is approaching those opportunities cautiously, however, and focusing on its strengths in consumer and military robots, Dyer said.
The Pentagon’s shift away from the long-range FCS program, with its focus on large, highly complex autonomous systems, increases iRobot’s opportunities. Rather than sell a few thousand units per year to only a portion of the Army, Dyer believes the Pentagon’s new stance will put iRobot products in virtually all combat brigades, and possibly in all reserve brigades as well. Exactly how broad that rollout will be depends on budget and policy decisions that have not yet been made for 2010. But the difference for iRobot’s prospects is between good and great, not good and bad, Robotics Business Review believes.
Expanding Products and Operating Environments
Within the next year or so, according to Dyer, iRobot will add capabilities to its military robots such as two-way hailing — a radio connection to a speaker/microphone combination in a PackBot or Warrior so an operator can hear what’s going on around the ROV and speak to people near it — and the ability to recover a radio-control signal. Currently when an ROV moves out of radio range it loses the ability to operate and its driver must retrieve it. iRobot is building in the ability for the robot to remember the last place it had a good signal and return there.
iRobot will also deliver to its military customers a ‘cruise control’ that will allow an ROV to continue in a specific direction and speed until the operator tells it to stop, rather than forcing the operator to keep a finger on the drive button the whole time. And it will deliver a range of sizes and lift capabilities, to match the needs of different missions in both civilian and military units.
A negotiator robot iRobot is building for civilian police forces will sell for around $15,000, and will use two-way hailing to allow police to conduct negotiations through a robot rather than a telephone connection or bullhorn.
iRobot is not only expanding its coterie of ground-based robots, it is moving under sea as well following its September acquisition of Nekton Research, LLC, an unmanned underwater robot and technology company based in Raleigh-Durham, N.C.
Like PackBot and Warrior, Nekton’s Ranger unmanned underwater vehicle is designed for use by the military. Nekton’s funding and contracts for the unit come from the Office of Naval Research (ONR), Naval Undersea Warfare Command (NUWC), the Naval Air Systems Command (NAVAIR) and the U.S. Special Operations Command (SOCOM). iRobot does not lack for competition in selling UUVs to the military, but the submarine market is far more open than it is for non-defense work. Most UUVs are designed for the monitoring and maintenance of undersea oil and telecommunications asset and are manufactured by well-known energy industry vendors.
iRobot will add Ranger to its Seaglider line, the UUV it licensed from the University of Washington’s Applied Physics Laboratory and School of Oceanography. UW set an endurance record for autonomous navigation of an unmanned vehicle when a pair of Seagliders were retrieved after more than six months of monitoring water conditions under Arctic Circle ice, surfacing every three to nine hours to broadcast their results.
Opening a Market in Robotics Software
Dyer will not commit to specific products or direction on either military or consumer robots. He does say, however, that the company plans to expand into selling not only robots, but the software to operate and develop them as well.
iRobot has already licensed a robot operating system called Aware to government labs, so some of its development partners, and has told the Pentagon it would license the OS to other entities as well. The idea is to increase the speed with which robots can be developed, controlled and coordinated by creating a set of software on top of which specific controls, drivers and special-purpose software can operate, in much the same way that special-purpose applications run on top of Windows or the MacOS without requiring application developers to develop drivers for computer hardware themselves.
“We think an OS for robots has the potential to dramatically improve the productivity of development [of new robots] and of the integration of multiple robots working on common controllers,” Dyer said. The company will not integrate vertically, as does Apple Computer, manufacturing all the hardware and much of the software its customers can buy. It will license the OS to an array of partners who make payload and sensor equipment, rather than try to compete with those suppliers.
iRobot’s strategy — to expand both the range and capability of its existing military product lines and start a new business licensing software it has already developed for its own use — is an efficient and conservative one that takes advantage of the company’s proven strengths and avoids the do-everything strategy common to many that dilutes small manufacturers focus.
iRobot’s strength, as Dyer acknowledges, is not the originality of its engineering, but its ability to get solid, workable innovations out of a lab environment and into the field as a functional, useful robot that is not so complex or delicate as to produce high rates of failure in manufacturing or in the field. Anyone who has seen a recent-model Roomba operate in environments filled with obstacles such as furniture, pets and children can testify to iRobot’s ability to build autonomous systems that can recover from minor errors and overcome small obstacles. The achingly simple modularity of the most recent Roomba designs — which can be quickly and easily disassembled and reassembled by hand to clear tangles and other obstructions — and the easy repairability of PackBots, demonstrate that the company has learned how to engineer products that can survive environments that are unfriendly to robots — which is any environment in which humans also operate.
Robotics Business Review believes iRobot’s favored position in the current U.S. military supply line, and the increasingly automation-centered strategy of the U.S. military, will continue to expand the company’s prospects, likely far beyond the 25 percent growth financial analysts predict for the company’s next five years. As the company grows, so will its efficiencies in manufacturing, design and licensing, making its cost model far less asset-intensive and raising its profit margin far above single digits.