Why iRobot Needs Better Robots
Don't look now, but it looks like some new companies are going to give iRobot a run for its money.
The maker of Roomba robotic vacuums and PackBot bomb-disposal robots (and, admittedly, a lot of other robots besides) shed 14% of its market cap last week after beating earnings expectations but failing to wow analysts with its guidance for the rest of this year. Shaky guidance, however, may be the least of iRobot's problems. Turns out, the company's starting to encounter some resistance from competitors in at least two of its key markets.
Trouble at "home"
In robotic vacuums-for-the home, for example, iRobot remains the company to beat. Sales grew 20% in the most recent quarter, the company's Roombas continue to dominate search results on Amazon, and it scores impressive reviews on independent websites as well.
All that being said, rivals are now attacking iRobot's monopoly. On the one hand, you've got "dirt" cheap alternatives from China-owned Dirt Devil enticing shoppers at the low end of the income scale. On the high end, Samsung has a new line of "Navibot" vacuums that cost more than the Roombas but whose space-age appearance makes iRobot's products look positively 20th century.
And trouble downrange as well
Meanwhile, iRobot's reputation for innovation in military bomb-disposal robots may also be eroding. Why, in just the past month, the U.S. Department of Defense has placed not one but two separate orders for "Talon" explosive ordnance disposal (EOD) robots from iRobot's British rival, QinetiQ. At $28.2 million in combined value, these contracts come close to equaling the $30 million Pentagon contract that iRobot won that same month.
Now, this week we learn that a previously unheard of company also has a dog in this fight -- or more specifically, a "tiger." According to DefenseNews.com, Turkey's biggest defense contractor, Aselsan, has recently been conducting tests in cooperation with the U.S. and other NATO allies, exploring the potential for use of that company's Kaplan (Turkish for "tiger") EOD robot in NATO units.
Kaplan's claim to fame is that it boasts a three-dimensional ground-penetrating radar system integrated into the robot's design. According to Turkish defense website TRDefence.com, the Kaplan's radar is capable of detecting explosive devices buried several feet underground or concealed inside "thick boxes and packages." So not only can the robot be used to dispose of bombs, but it may also be better at detecting bombs in the first place than are iRobot's 'bots.
The attraction such an innovation would hold for the military is obvious. Just as clear is the need for iRobot to quit coasting on its past successes and start upping its game. Investors won't willingly pay 38 times earnings for low-teens earnings growth, and "same old, same old" products forever -- not when the competition seems to be doing iRobot's job better than iRobot does it itself.
Failure to compete isn't a problem limited to iRobot. What macro trend was Warren Buffett referring to when he said "this is the tapeworm that's eating at American competitiveness"? Find out in our free report: "What's Really Eating at America's Competitiveness." You'll also discover an idea to profit as companies work to eradicate this efficiency-sucking tapeworm. Just click here for free, immediate access.
The article Why iRobot Needs Better Robots originally appeared on Fool.com.Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends iRobot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.