Thursday, February 22, 2007

The Shadow of Consumer Electronics

What kind of estimated returns on investment will pull major venture capital into a nanoscale technology? High gross margins will be crucial since investors have high expectations based on the overall Internet economy, and will chase returns in more conventional sectors if nano can't match those.

Case in point: yesterday, a Wall Street Journal article on Apple's future pricing of iPhones cited estimates that the iPhone's gross margins will be as high as 49%, "well ahead of the recent company average of 31%." Remember that gross margin is normally defined as revenue minus the cost of the goods sold, so that a gross margin of nearly 50% means that Apple plans to sell the iPhone for twice the product cost (the $499 phone allegedly costs Apple $245.93 based on an analysis of its expected components). This is an enormous return: can we model the overall high-tech and nanotech economies on that kind of revenue expectation?

I have been unable to get a clear answer from the sources of these component analyses as to whether they have included estimates of per-unit R&D costs. I don't think they have. No nanotechnology will generate these kinds of margins unless R&D costs are at least partially off the books. That is one function of current industry-university relations, which creates public subsidies for basic research. But that is only a partial solution. It will never look good compared to the high points of consumer electronics like the iPod and maybe the iPhone, where brilliant design is coupled with incrementally better and not-too-expensive R&D to make new product categories. When those future 3rd and 4th generations of nanoproducts do create whole new product categories, as most of us expect, their true R&D costs may be so high that accurate accounting will keep their ROIs low for many years.

Nanotechnology may need a new investment system. Would we call it post-Venture Capitalism? Post-biotech?

Monday, February 19, 2007

Green Chinese Air Conditioning

Anyone who thinks about nano these days also thinks about China. The Atlantic Monthly dated March 2007 has an interesting piece by James Fallows about Broad Air Conditioning outside Changsha, its tycoon founder Zhang Yue, its business methods, and its technology. The essay raises a number of questions that are relevant to nano-watchers: China's ability to develop new technologies and not just cheapen existing ones; the deep integration of the business and social systems; a concern about the environment and sustainability that may be far deeper and more pervasive than we realize; and a profound love of quality. Fallows treats us to various goofy Zhang quirks as well - his desire for green airplanes, his military-style factory training, the incredible mishmash of cliches from Western architecture and history that he strews around the factory compound where he lives with his wife, son, and parents. But the local color, no matter how oddball in itself, adds up to a very intelligent world view. When Zhang says good food matters, or that a visually-pleasing factory environment matters, he expresses a humanistic vision of employees, work, and a potentially harmonious society that is at odds with, and in my view more advanced than, the borderline Darwinism that sets the boundaries of most American business thinking. This vision, I will bet anyone, is finally the greater labor threat from China than sheer numbers and cheapness. Fallows gets this. Citing a hokey line from a film Zhang has made called "The World in 2015," Fallows concludes, "as an indication that more than pure moneymaking is under way, it is worth noticing. China will bring more than mere commerce to the world."

Saturday, February 10, 2007

Engines of Creation, redux

For those of you interested in one of the classic texts on nanotechnology, there is a new edition of Eric Drexler's Engines of Creation available. Christine Peterson has a link to where it can be accessed and some additional information about it here. The issue of how visionary works like EoC later influenced public policy still remains to be elucidated.

Friday, February 09, 2007

Liberating Aerospace IP

There is a thread on slashdot that directly relates to the patent trolling studies that Chris is leading. It describes how the FAA has tied up tons of intellectual property surrounding abandoned aircraft designs and will now release it. This is quite similar to the way that startup companies will lock down the rights on nanotechnology concepts and then dissolve without willing their rights to someone that would make use of it. I think that there should be an amendment to patent law that basically says if you don't use it you loose it.

Thursday, February 01, 2007

Technology Transfer

Slashdot has posted this thread about making sure that technology developed in universities sees the light of day. I often complain that excellent drug targets are validated at universities and then ignored by the pharmaceutical industry. Two classic examples of this are DNA adenine methyltransferase and the viral enzyme ns1a. Chemists could probably find a way to inhibit those enzymes and thus make potent drugs. It would be nice if someone would start trying.