Cash in on the robot revolution

From automated factories to robot soldiers, even butlers – there’s money to be made from the robot revolution, says James McKeigue.

The Gulf of Mexico oil spill has been a disaster for most of those involved – but it spells opportunity for the companies mopping up the mess. In past offshore oil disasters, the knights in shining armour were specialists, such as Red Adair, the famed oil-fire fighter who controlled the Piper Alpha explosion. But with the drama in the Gulf taking place 5,000ft below sea level, now it’s robots who are performing the heroics.

Remotely operated vehicles (ROVs) have been trying to operate the well’s safety valve and sent images of the leak to the surface. Other, more sophisticated, robots are monitoring the spill. As fears mount that the slick may enter the Gulf Stream and move up America’s east coast, scientists need to track its size, direction and composition. With the slick now measuring thousands of square kilometres and reaching depths of up to 1,300 metres, it would be a logistical nightmare to measure it with conventional ‘man on a boat’ technology.

Recommended reading

Enter Seaglider, an unmanned underwater vehicle (UUV) made by US robotics group iRobot. As Joseph Dyer, iRobot’s president of Government and Industrial Robots puts it, Seaglider is akin to a “pick-up truck that can be fitted with a range of equipment”. Once scientists have strapped on the right kit, Seaglider can travel thousands of kilometres, to depths of 3,300ft, while transmitting daily satellite reports for ten months at a time. Both the University of Mississippi and the US Navy are using Seaglider to monitor the spill and further orders are likely. 

Increasing sophistication of robots

Seaglider is an impressive piece of equipment. And it shows what is possible with cutting-edge technology. But it’s just one area where the use of robots is growing. Your day-to-day robot is more likely to be a mechanical arm in a factory, or a self-piloting shelf in a warehouse. These sorts of industrial robots have been around since 1961, when the first robot, a machine that dropped molten car parts into pools of cooling liquid on an assembly line, was installed at a General Motors plant in New Jersey.

Today, vehicle, electronics and chemicals manufacturing remain the top industries for robot usage. After a slow start, sales in these sectors ticked higher as firms realised they had to match rivals’ investments to remain competitive. Despite high start-up costs, automation gave manufacturers improved efficiency, quality and consistency, while at the same time cutting running costs. Now there are more than a million units in operation worldwide. Including software, the market was worth $19bn in 2008.

Unsurprisingly, 2009 was tough. Overall industrial robot sales are thought to have fallen by about 40% as manufacturers, faced with plunging demand, scrapped upgrade and expansion projects. Now, though, demand is recovering. More importantly, this is just a short-term setback. Many other industries can benefit from automation before its potential is anywhere near fulfilled.

That’s because, like any other electronic item, today’s robots deliver far better results for a lot less money than in 1961. Indeed, computer processors are becoming ever-more powerful and ever cheaper. Robots need processors to remember instructions and digest information from their sensors. So as processors improve, more sophisticated robots can be built, without raising costs.

As robots become more sophisticated they can be used in a growing range of industries. Even as demand in more mature sectors fell in the UK last year, food manufacturers bought more robots than any other industry, according to the British Automation and Robotics Association. “I believe the food industry is undergoing a robotic revolution,” Nigel Smith of Toshiba Machine Robotics told Packaging News this week. “Just as the automotive sector became heavily automated in the 1970s, so the late noughties brought a scramble among food manufacturers to invest.” Improvements in robotic vision and gripping technology mean even the most fragile or complicated items can now be packed mechanically.

Special FREE report from MoneyWeek magazine: When will house prices bottom out – and how will you know?

  • Why UK property prices are going to fall 50%
  • When it will be time to get back in and buy up half price property

Cheaper, better workers

As well as increasing efficiency, there are long-term demographic factors driving demand for robots. In many developed economies, an ever-shrinking group of workers is propping up an ever-growing group of pensioners. Germany, for example, expects to have a shortage of around six million workers by 2020. Someone needs to replace them. Robots can also do unpleasant or dangerous jobs cheaply. Robotics group Aetheon makes ‘Tug’ robots, which transport items around hospitals, including infectious waste. And as chief executive Aldo Zini tells Bloomberg Businessweek, “they don’t take breaks… and you don’t have to pay them benefits”.

But it’s not about cynically rendering flesh and blood workers obsolete, argues Jeff Burnstein in the same magazine. He reckons robots will help US manufacturers “turn out higher-quality and lower-cost goods to compete with those made inÉ low-wage nations”. This frees staff up “from dangerous and boring jobs…and puts them in higher-skilled, higher-paying positions”.

That’s as maybe. But emerging markets won’t just sit back and let the US get the upper hand. As developing economies grow wealthier, their companies are also investing more heavily in automation. China’s robot purchases grew by 20% in 2008. Total supplies to Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam grew by 10%. Appreciating currencies in emerging Asian economies will also improve the cost efficiency of robots (especially those made in Europe) relative to domestic labour, a trend that’s set to continue.

Robot healers and soldiers

Demand for ‘professional service’ robots is also growing rapidly. Rather than being factory-bound, these are fully or semi-autonomous robots, designed to help humans complete specific tasks. In 2008, there were only 63,000 units in operation, yet the market was valued at $11bn. That’s tripled in size from 2005. The recession is also having less of an impact on demand for these robots, because of the sectors involved – defence, agriculture and medicine.

The first medical robot, the PUMA 560, was used to place a needle for a brain biopsy in 1985. Others followed. But while they were useful in some situations they were costly to develop and had a small market. The breakthrough came in 1997 when for the first time a robotic surgical system was able to help surgeons carry out operations. Since then medical robots have grown rapidly, to account for 8% of professional robot sales in 2008.

These robots enable surgeons to complete difficult operations that previously only certain specialists could do. Surgical robots can correct for human error (such as tremors in a surgeon’s hand) and also make smaller and more precise movements than even the most skilled human hands could manage. This means that robotic surgery involves smaller incisions, which cuts the risk of future complications, as well as reducing the extent of scarring and pain.

At the other end of the market, the defence industry accounted for more than a third of service robot sales in 2008. The main consumer – the US army – is keen to keep human casualties to a minimum. It uses robots for everything from airborne spy drones to bomb disposal units. In 2001, the US army told Congress that it wanted 15% of its total fleet to be unmanned by 2015. This ambitious target is unlikely to be met, but the number of robots in use has soared. In 2003, the US army had just three unmanned aerial vehicles (UAVs). By the end of 2009, it had 5,300. And the amount spent on ground robots has roughly doubled each year from 2001. The army has recently requested $964m from the US government to spend on UAVs, and $1bn for ground combat vehicles in 2011. To the military, robots are “ideal for the three Ds”: jobs that are dirty, dangerous or dull. With no sign of an end to the wars in Iraq or Afghanistan, there will be a plentiful supply of those in the years ahead.

Domestic robots

What about the consumer market? We don’t have robot butlers in our homes yet. But domestic robots (everything from home security to robot vacuum cleaners) are already widespread. There are 7.2 million in use; the International Federation of Robotics reckons 4.4 million more will have been sold by 2012 as cheap processors enable producers to build useful products at prices people can afford.

The problem for investors is that this is the most competitive end of the market. Compared to professional service or industrial robots, domestic robots are cheap to develop, so there are many suppliers experimenting with different products, technology and marketing strategies. While there will be many winners, there will also be lots of losers, as there’s no way to predict which domestic robots will become standard products in households. But one player stands head and shoulders above the rest. We look at this, and other ways to profit from the robot growth story, here: Five ways into the robotics sector.

This article was originally published in MoneyWeek magazine issue number 490 on 11 June 2010, and was available exclusively to magazine subscribers. To read more articles like this, ensure you don’t miss a thing, and get instant access to all our premium content, subscribe to MoneyWeek magazine now and get your first three issues free.


Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.