iRobot Corporation (NASDAQ:IRBT) still has a stunning 2.4 million shares short, nearly 10 percent of the company, and a much larger percentage of the shares in circulation (when founders shares, etc. are not included).
Every time iRobot has reported substantially good news, such as its recent upward revisions in its earnings and revenue outlook for the year, the company stock price pops, but the pops haven't had as much staying power recently. One possibility is that some shorts cover immediately but are quickly replaced by new shorts who see an opportunity to get in at a higher price. IRBT's relatively small daily volume would seem to make it an attractive target for manipulation. At any rate, the stock has been known for some pretty wild swings over the years, with multiple occasions when it has soared 20 percent, as well as several slow slides like the one we seem to be in now.
Some things to keep in mind right now with this stock:
* iRobot now has its first legitimate contender for the Roomba crown in America. The $399 Neato Robotics XV-11 robotic vacuum has features that Roomba can't match, including a laser quidance system that maps the room instead of Roomba's programmed semi-random algorithms. This has the potential to seriously erode the high end of the Roomba line (which runs from $129-$549), and demands a response from iRobot. I'm expecting a major upgrade to Roomba in 2011 to compete with Neato. If we don't, then there is a problem at iRobot HQ. They need to take this threat seriously. The Roomba 500 series was a major accomplishment for the company, adding reliability, extra cleaning power, and sophistication. But it's time for a major upgrade. While iRobot has been focused of late on building a health care robot to take care of older Americans in their homes, they are at risk of having their prime moneymaker, the iconic Roomba, relegated to second-tier status. That being said, it is going to take time for Neato to gear up, and what will likely be an upcoming showdown in Consumer Reports between the two models could prove particularly dangerous for iRobot. (The Roomba got a boost from CR when it was found to perform as well as the $1,800 Electrolux Trilobite a couple of generations ago. Likewise, the company got walloped when CR gave a negative, and in my view unjustified, review of the Scooba robotic mop). All that being said, iRobot has a huge headstart over Neato in brand recognition and worldwide distribution, but they cannot rest on their laurels. Neato could easily sell tens of millions of dollars worth of robots if they play their cards right. The one advantage is that Neato could help expand the marketplace overall, and there is probably room for both companies. Neato also could be an easy way for a large consumer vacuum company to buy into robotics on the cheap -- and that could make iRobot a little bit less of a takeover target for the home side of the business. I also wonder if there is any talk within the company of buying Neato -- but that would probably take a big chunk of iRobot's cash hoard -- if the FTC approved it.
* Neither the Neato threat, nor the economy, should affect this year's earnings. The home robot business is going gangbusters overseas, and that should continue, especially in Japan, which remains a largely untapped, and ideal, market for iRobot, given the strong yen, that nation's love for robots, the small, easily cleaned homes many Japanese own, and the lack of a large, cheap cleaning workforce like we have in America. Remember that the company on its most recent conference call said that they simply won't have the capacity to build enough Roombas to meet demand before 2011, when a new manufacturer comes on board in China, anyway.
* The military side of the business is going very, very well. Much of this is due to Afghanistan, where iRobot's SUGV and PackBot products seem to be in demand because they are smaller and more maneuverable than the competition in a country with difficult terrain. This seems like a sure thing to keep on trucking through mid-2011, when we may start a pullback of troops from Afghanistan. At that point, the question is whether iRobot can sustain its sales as the military looks to restock for future conflicts. I'm betting yes -- that the military has seen the light on robotics and wants to build its capabilities in that area while de-emphasizing the much more costly legacy equipment of 20th century conventional warfare. And I still think that the company is takeover bait (or partial takeover-bait) for the military side of the business all on its own.
Tags: iRobot, robot, IRBT, robotics
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4 comments:
A few thoughts on this competition:
Based on the reviews that I have read regarding the Neato robot, irobot does still have a couple of advantages:
1. Using virtual walls instead of the magnetic strips used by Neato. I can't believe that Neato created such an advanced robot while using such an archaic method for stopping the robot from going into a particular area.
2. Spinning side brush- Neato's robot is square, which in theory helps with corner cleaning, but edge cleaning can't be done as well as roomba's side brush can do it.
Having said this, the next generation roomba has got to address the following issues:
1. Autonomy- Neato's robot obviously way outpaces the roomba in this area. By actually mapping its surroundings, Neato knows where it has been, where it is going, where doorways are, etc. so that it can clean the whole house quickly and efficiently without blindly bumping around. In fact, in a way this minimizes the difficulties with the magnetic strips, because if you just want your robot to clean the whole house, you won't need the magnetic strips. It is nice that Neato can even go back to where it left off after charging because of this mapping feature.
Maintenance- From what I hear, the Neato bot does not share the well-known problem of the roombas, namely that the cleaning head mechanism is poorly designed, where hair and dust clog up the brushes and motors easily. The whole point of a robot should be less work for the owner, but when you have to clean your robot every time you use it, it defeats the purpose.
3. Battery- Unfortunately, when I received my roomba 560, irobot had just started to use its lousy Nickel Cadmium batteries instead of the better NimH batteries that it formerly used. As I figured, in about a year, the battery was a goner. In the year since, I have not replaced the battery, both out of anger at irobot, and because I don't want to pay $90 for a battery only to have the cleaning head mechanism go out (I am already on my second one). Who uses such an archaic battery technology other than irobot? Those cheaper batteries also do not last as long per charge, allowing roomba to clean substantially less floor on a charge. Neato has a much better battery. Neato's machine only runs for an hour on a charge, but this is due to its more powerful suction, and given the more efficient, human-like way that it cleans, it can still cover much more ground than the roomba.
In sum, while Neato still has some kinks to work out, Irobot has been put on notice that its complacency in its home robots division is no longer going to work.
Agreed on all of your points. When I get my hands on a Neato later this year, I'll put it through its paces. Time will tell on just how reliable they are relative to iRobot. There are lots of things that can go wrong that don't show up for months or years down the line. I never use the virtual walls so for me that's not that big a selling point vs. Neato. The spinning side brush is a bigger deal, and I wonder if Neato was worried about a patent lawsuit over that. But without a spinning brush, I can imagine a lot of dirt buildup along the walls over time. I wouldn't be surprised if iRobot is going over every inch of Neato's product as we speak to see if there are grounds to sue.
I wasn't aware of iRobot using cheaper Nickel Cadmium batteries -- shows you I've been out of the loop recently. Seems like a bad move, but maybe it's helping iRobot's stellar financial performance this year. I could see using a cheaper battery in their low-end robot, particularly if they came out with a $99 model, but not for the 560 series...
I still have a 560 that is going strong.
Yeah, if you go on Irobot's website, the NiCad battery is $70 and the better NiMh batter is $90. Note that the NiCad battery is 1800 Mah while the NiMh is 3000, so the difference in the amount of cleaning you can do is quite stark.
The markup on those batteries has to be enormous. The cost of nickel - the biggest cost in the robot - plummeted a few years ago. I just don't get it, unless they want to gouge customers who have their batteries day after a year.
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