Markets Too Limited : Robot Manufacturers Find Profits Are Elusive

When Robot Alliances Ltd. declared bankruptcy earlier this year, the Littleton, Colo., company joined a long list of robotics companies across the nation.

An industry shakeout has driven many robotics companies into bankruptcy and left survivors struggling to become profitable.

The embryonic industry, with estimated U.S. sales this year of about $300 million, is expected to grow by 30% annually over the next five years, but many companies have experienced heavy, sometimes fatal, losses in getting started.

“A lot of them have failed or have cut back to the point where they’re hardly in existence,” said Dale Johnson, president of Johnson Engineering Corp. in Boulder, Colo.

Heavy research and development costs have crippled many companies that developed a certain kind of robot only to find that the market for their machines is very limited, Johnson said.

“The fixed robot industry is quite competitive. It would be difficult for a small business to get into,” he said.

Johnson’s company, which does contract engineering for the National Aeronautics and Space Administration and the Air Force as well as a number of private companies, has done a limited amount of work in robotics.

“We tend to get involved in robotics only when there is (government) funding available,” he said.

The company, which employs about 150 workers and has annual sales of about $6 million, has applied some robotics techniques to developing a device that allows one-handed control of automobiles, an invention that Johnson hopes to begin marketing to handicapped people in the next year. And the company also has done some government-sponsored research on using robotics in NASA’s space program.

But Johnson noted that only about 10% of his company’s work is in robotics. And, while the company will increase its work in the field in coming years, Johnson wants to concentrate on special-purpose robots with a well-defined market.

“It’s hard to design a general robot that will be useful to many people. The main problem is trying to find a customer,” he said.

The federal government has been a good customer for a number of companies involved in robotics.

Martin Marietta Denver Aerospace here has received several contracts for robotics work, including a $17-million contract to develop a vehicle that drives by itself. The Autonomous Land Vehicle, or ALV, recently drove down a winding road without human guidance.

Engineers hope to use advanced artificial intelligence techniques to equip the ALV with enough sensors and “brains” so that it will be able to recognize various obstacles in its path and decide what to do about them. Martin Marietta will be working on the project over a five-year period.

Another company that has enjoyed government contracts is Robot Defense Systems of Thornton, Colo.

Company spokesman Walt Lee said that his company, which has developed a mobile robot that has military and security applications, has received contracts from an Energy Department agency and the Army. The Army contract is for a control system for a mine-clearing tank. Yet, even with its military contracts, which will boost sales to about $3 million this year, the company has not yet turned a profit.

Robot Defense believes that it will turn the corner to profitability in the next quarter or two, Lee said, and hopes to expand its range to ensure future profits as well. “We are breaking away from that dependence on military contracting,” he said.

For instance, the company is exploring the possibility of using its robots in mining.

“There are some dangerous mining situations where it’s best to get the humans out of there,” he said.

One company that tried to crack the consumer market for robots is RB Robot Corp. of Golden, Colo.

But consumer demand for the two-foot high, $1,795 robots called RB5X was so slack that the company was forced to file for reorganization under Chapter 11 of the U.S. Bankruptcy Code last year.

The company, which once employed 37 persons, has only six employees now, and it is trying to transform itself into a company that sells educational robots.

Educators Hired

“We took the RB5X and built a curriculum around it,” said Kevin Rees, the company’s controller.

The company has hired educators to develop the curriculum and has made its first sale to the El Paso school system. If the robots gain wider acceptance, the company could become profitable next year.

Some robotics companies have targeted manufacturing companies.

Jim Jones, president of Apogee Robotics in Fort Collins, Colo., said that sales of his company’s automatic guided vehicle systems reached $1.7 million last year and may more than double to $4 million this year.

Apogee’s Expediter system can move materials around a factory while keeping track of when and where it is delivering the materials.

Unlike many robotic companies, which produce “arms” that perform a function repeatedly, Apogee’s products are mobile robots--a field that is not nearly as crowded, Jones said.

Apogee is one of about 15 American companies that are producing automatic guided vehicle systems, while hundreds are selling robotic arms, he said.

But 2-year-old Apogee has yet to become profitable, although, if sales remain strong, it may become profitable soon.

Talk of becoming profitable is rampant throughout the industry as many companies that started in recent years have completed their expensive start-up stage and moved toward greater sales.

But a few small companies have managed to be profitable almost from the beginning. Those systems integrators generally design and install custom-made robotics equipment and are free of the expensive development and overhead costs that have plagued many robotic manufacturing companies. Indeed, those small companies may be the most profitable segment of the industry.

Already Profitable

James Sherman, president of Computer Aided Robotics in Boulder, said his 18-month-old company is already profitable because “we’re not just spending money developing products that people don’t need.”

Sherman’s company, which custom builds automation equipment using Seiko and Adept robots, expects to have sales of about $250,000 this year, and it may make a public stock offering next year.

The company employs only seven persons but will probably add another five by next year, Sherman said.

“We’re finding quite a bit of business out there,” he said.

But for the future of the robotics industry, it appears to be on shaky ground in the short run.

“The industry will continue to consolidate. There is an excess of robotics companies in the market,” said Steve Purdy, who follows the industry for Dataquest, a San Jose market research company.