A Closer Look at 2 Lux Nanotech Companies
In a recent article, we examined the constituents of the Lux Nanotech Index in an attempt to determine why the overall index performed so poorly, and more importantly to determine in any of the index members merit a second look today. The first step we took was to eliminate all companies that did not exceed the returns of the NASDAQ over the past ten years. The reasoning for this was that if a company is truly utilizing nanotechnology in a disruptive manner, then over the course of ten years they should provide superior returns. Ten years is certainly a long enough horizon to begin realizing a competitive advantage. We also removed any companies that overlapped with the Merrill Lynch Nanotechnology index that we analyzed in an earlier article. After applying these screens, we were left with 5 companies that showed superior returns over the past 10 years as seen below:
|10-Year Return||Market Cap (millions)||Business Focus|
|Aixtron SE NA||+479%||1400||Deposition equipment|
|Harris||+202%||7350||Communications and IT|
|Biodelivery Sciences International||+648%||640||Drug delivery|
Did any of these companies realize superior returns as a result of using nanotechnology? Let’s take a closer look at 2 of these companies, Aixtron and Gentherm, to see if we can answer this question.
German company Aixtron (NASDAQ:AIXG) is in the business of manufacturing chemical vapor deposition (CVD) equipment that is used for the production of LEDs, carbon nanostructures such as carbon nanotubes, graphene, organic solar cells, memory chips, and many other applications. While the past 10 years have been bright for Aixtron, the future looks gloomy. In the past year, shares in Aixtron have fallen over 25%. The below chart provided by Aixtron shows a very poor outlook for the Company:
Firstly, Aixtron is losing market share to Veeco (a company that was a member of the Merrill Lynch Nanotechnology index and which did not beat the returns of the NASDAQ over the past ten years). Secondly, the “total addressable market” has fallen sharply by 80% in just three years from $1.7 billion to $323 million. It’s hard to sell systems if nobody wants to buy them. An article this year by Seminconductor Today states that global sales of MOCsystems fell by 46% year-on-year to a total of 148 units in 2013. Not only that, but Veeco and Aixtron are said to have lowered quotes in the China market from about $2 million to about $1.4 million for a single-wafer MOCVD system and by 30-40% for a multi-wafer model.
It’s easy to see why Lux Nanotech picked Aixtron as a “nanotechnology company”. However, while the company builds equipment that enables multiple disruptive technologies, the market size/share trends do not look very appealing. Should the market for MOCVD systems turn around, Aixtron may merit a second look.
Michigan based company Gentherm (NASDAQ:THRM) has the stated goal of becoming the world market leader of thermal comfort technologies for applications in automotive and other markets. The company’s advanced thermoelectric device (“TED”) technology is a solid-state circuit that has the capability to produce both hot and cold thermal conditions. The Company has three reportable segments for financial reporting purposes: Climate Controlled Seats, Advanced Technology and W.E.T. (a company acquired by Gentherm that sells climate-controlled seats and cabling. Gentherm’s products include heated car seats/armrests/cupholders/steering wheels, and climate-controlled mattresses. They spend significant amounts of money on R&D, and are even working on thermoelectric generators with the government.
This is a very good business that has managed to reward shareholders with share appreciation of over 1100% in the past ten years, however, it does not seem like a business that can attribute their growth to the use of nanotechnology. No mention is made in any of the Company’s materials about the use of “nanotechnology”. Even if nanotechnology is used to create more comfortable car seats or mattresses, this hardly constitutes a disruptive application since these are luxury items and have a limited market.
In a future article, we’ll look at the remaining three “nanotechnology companies” in the Lux Nanotech Index that managed to achieve superior returns in the past 10 years when compared to the returns of the NASDAQ.
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