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Are Nano-Materials Over-Hyped
New York (UPI) Oct 29, 2004
The field of nanomaterials has been tremendously over-hyped, analysts at nanotechnology research and advisory firm Lux Research in New York City told UPI's Nano World. Matthew Nordan, vice president of research at Lux Research, said the field of nanomaterials will disappoint investors, reaching $13 billion in 2014 - an order-of-magnitude less than popular expectations.
Nanomaterials are only nanometers or billionths of a meter in size. They comprise the basic building blocks of nanotechnology, or science and engineering on the scale of molecules.
Nanotechnology is expected to drive a second Industrial Revolution in the 21st century, yielding a panoply of devices - everything from miniature supercomputers to labs on a chip that can rapidly scan a person for a disease or a terrorist's tools.
In 2004, about 200 companies worldwide sold roughly $130 million in nanomaterials. As nanotechnology ramps up over the next decade, expectations are high that nanomaterials demand will skyrocket as well, leading to big profits.
For instance, Carbon Nanotechnologies. in Houston speaks of $5 billion in revenue opportunities within 10 years for carbon nanotubes, the darling of the nanomaterials realm, which possess both incredible strength and electrical properties.
Existing analyses of nanotech revenues are flawed if they view nanotech as a single market that will produce massive profit margins, Lux Research said.
Nanotech is not a sector of its own, but rather is a set of technologies that enhances other industries, and the profits a given nanotech will see depends on where it fits in an industry's value chain.
Nanotech can fit into industry value chains in three ways.
- Nanomaterials, such as the clay nanoparticles made by Southern Clay Products in Austin, Texas, are fundamental building blocks.
- Nano-intermediates, as Lux Research calls them, incorporate nanomaterials or nano-sized features - for instance, fabrics, memory chips or the composite materials bearing Southern Clay's nanoparticles and made by Basell in Hoofddorp, Netherlands.
- Nano-enabled products, such as clothes, computers or the 2004 Chevy Impala made with Basell's composite, whose side body moldings are 7 percent lighter in weight.
There are several reasons why nanomaterials will disappoint, Nordan said. First, as noted, more than 200 companies worldwide are producing nanomaterials, more than 50 of which are producing carbon nanotubes.
That's extremely crowded, he explained. There's going to be brutal consolidation there within at least five years.
Second, nanomaterials follow the economics other commodities face. If a gas company sells you carbon dioxide or nitrogen, by definition, it's no better than any other's, Nordan said.
You make money off volume or availability or services, and strive to cut prices to the floor. Following commodity economics, operating margins for nanomaterials should converge around 8 percent or 9 percent in a good year, Nordan said.
Third, there is an enormous amount of overlapping intellectual property for many nanomaterials, which should lead to a bloodbath of lawsuits, he added.
Lux Research finds it unlikely that new materials giants will emerge based on nanotechnology, because the capital costs for scaling up plants are massive, nanomaterials startups lack the cash to invest in scale ahead of demand, and the field is so crowded by the time volumes do ramp - and margins will be so competitive - no startup will generate enough cash to do so.
Instead, Lux Research expects incumbents will swoop in as soon as volumes begin to ramp and either buy or sign manufacturing and distribution deals with the startups - a good reason for startups to position now for future deals.
A far more interesting field is nano-intermediates, Nordan said.
They have five to 10 times an increase in value as measured by price paid per good, he explained. Furthermore, intermediates have the highest margins in any industry, with Nordan pointing at Intel, which sees a 30-percent-or-so operating margin on its products.
You ought to see double-digit margins with nano-intermediates, not single-digit, he said. Lux Research thinks the Intels and Microsofts of nanotech will emerge from nano-intermediates and tools.
Of the three stages, the one that by far will see the greatest amount of revenues, we believe, will be nano-enabled products, the company said.
Nanomaterials will see $13 billion in revenues in 2014 and nano-intermediates will see $742 billion, while nano-enabled products will total $1.8 trillion, Lux Research estimates.
All in all, products incorporating emerging nanotechnology could total $2.6 trillion in 2014 - 10 times larger than biotechnology revenues and approaching the size of the information technology and telecom industries combined.
Still, although nano-enabled products will be the revenue winners, the greater level of profit is going to be in nano-intermediates, with margins three times as high, Nordan said.
Lux Research predicts nanotechnology's growth will occur in three phases. They based their findings not on the diffusion curves used in standard market forecasts - which assume after a slow buildup there will be a steep acceleration in profits followed by a leveling off - but on evolutionary models applied by Paul Ormerod.
He is the one-time senior economic forecaster and modeler at Britain's National Institute of Social and Economic Research and a director at Volterra Consulting in London.
The evolutionary models assume a given nanotechnology had as many as 10 to 12 competing technologies to compete against, each with their own strengths and weaknesses.
Diffusion curves must lie behind the very optimistic forecasts produced for nanomaterials, Ormerod told Nano World. In contrast, the evolutionary models look at whether a nanotechnology would even last enough to become successful.
Each technology was evaluated for seven or eight factors - say, capacity or speed when it came to memory devices - and judged against one another, to come up with likely, best-case and worst-case scenarios.
The models also divided the impact nanotechnology would have on different industries, instead of basing numbers on what impact nanotechnology would have in aggregate.
In the first phase, ending this year, revenues from products incorporating nanotechnology will total $13 billion, the firm found, $8.5 billion of which lies in automotive and aerospace applications.
Nanomaterials still cost too much to use in anything but research quantities, while nano-intermediates are seen as expensive and unproven by buyers in higher-volume applications, such as food packaging.
Nano-enabled products currently amount mostly to mundane, minor improvements, such as London-based JR Nanotech's Sole-Fresh socks lined with bacteria-killing silver nanoparticles, while game-changing innovations remain either in the pilot phase or confined to niches.
In the second phase, lasting through 2009, Lux Research said the nanotechnology dam will burst, with revenues rising to $292 billion.
By then, improved production processes will reduce nanomaterials costs, allowing high volumes and lower prices. Nano-intermediate revenues will grow, driven by applications in electronics and IT, such as microprocessors and memory chips built using new nanoscale processes come to market.
Nano-enabled products, dominated by auto, will make up a large portion of the $292 billion figure.
From 2010 onwards, Lux Research predicted nanotechnology will then become commonplace in manufactured goods at 15 percent of global manufacturing output, up from less than 0.1 percent today.
At that point, we won't hear 'nanotechnology' that often anymore, Nordan said. Much as the prefixes cyber or e have largely dropped out of usage now that the Internet has become the standard way of doing business, he explained, the nano-electronics of 2005 will just be the mainstream electronics of 2010.
Healthcare and life sciences applications finally will become significant in this period as nano-enabled pharmaceuticals and medical devices emerge from lengthy human trials, the firm noted.
In 2014, we project that 4 percent of general manufactured goods, 50 percent of electronics and IT products, and 16 percent of goods in healthcare and life sciences by revenue will incorporate emerging nanotechnology, Nordan said.
In addition, Lux Research predicts the Asia-Pacific region will lead the United States in total emerging nanotechnology revenues across the value chain as it does today.
In 2008, the firm expects Asia-Pacific to claim 47 percent of nanotechnology revenues, compared with 28 percent in the United States, 25 percent in Europe and 5 percent everywhere else.
After 2009, the incorporation of nanotechnology in U.S.-dominated categories, such as pharmaceuticals, will swing the balance back, with Asia-Pacific claiming 40 percent of revenue in 2014 compared to 32 percent with the United States.
Last, nanotechnology's increasing relevance creates clear mandates for business and government leaders.
Corporations need to develop an explicit nanotechnology strategy - apart from leaders such as DuPont and Praxair, few companies coordinate their nanotechnology activities at all today, Nordan said.
Investors should focus on nanotechnology applications in the middle of industry supply chains where profit potential is highest, and consider playing nanotech as a long-term secular trend. Public sector leaders should focus on fostering nanotechnology demand, not just supply, and establish informed regulation to address health and safety issues.
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