The American Spectator

The Investor

In 1959, physicist Dr. Richard Feynman gave birth to the concept of nanotechnology. Feynman described the theoretical approaches to "manipulating and controlling things on a very small scale." For instance, he recognized that computers, then the size of buildings, would need to get continually smaller to become important to our lives. He also predicted advances in medicine and learning. Feynman's only real misjudgment was that he overestimated our ability to figure any of this out. "In the year 2000, when they look back at this age, they will wonder why it was not until the year 1960 that anybody began seriously to move in this direction."

People mostly took Feynman's talk as a joke. It took more than 25 years to even give a name to the science he was describing. But, as computers became the world's most important appliance and their relentless development both proved Feynman correct and created the need for further developments, nanotechnology became a serious subject.

To keep making microprocessors more powerful, it is necessary to make the circuits ever smaller. This year, Intel will be selling chips with circuits 90 nanometers in diameter. (Semantics: your arm is about a meter in length. One-thousandth of that length, a millimeter, is visible to the naked eye. One-thousandth of that length is a micron. One-thousandth of that is a nanometer. A nanometer is the length of about six atoms.) For a company like Intel, nanotechnology is just a continuation of the processes it began a couple decades ago.

It is just dawning on the rest of the world, though, that the Next Big Thing is going to be small. President Clinton launched the National Nanotechnology Initiative in 2000, increasing federal funding and coordination of nanotech research. President Bush has pushed to increase funding and the House Science Committee just last week approved legislation to authorize $2.3 billion over the next three years for nanotech R&D. The National Science Foundation predicts a $1 trillion global market for nanotechnology by 2015.

When you think of it, stripped of its sci-fi background, nanotechnology is an area that should explode. Imagine all the things computers could do if made several times smaller and more powerful. Nanotechnology can revolutionize medicine with improved delivery devices for drugs and other treatments -- wouldn't you like a tiny device that finds and removes cancer cells, one by one? Vast libraries can become portable. Materials constructed atom-by-atom will be stronger and more flexible.

Before we become too euphoric with the prospects, note the increasing presence of venture capitalists. VCs are relatively late to the party, having just shaken themselves loose from the dot-com bubble. But they put about a half-billion dollars into nanotech in 2002 and are trying to get as many bets down as they can.

The great thing about venture capitalists is that they are capitalists. The government can get suckered by high-IQ scientists but VCs have to produce results. The bad thing about venture capitalists is, unfortunately, that they are capitalists. They are out to make money and if the Greater Fool Theory is the fastest way to do it, guess who they will be targeting? While you were buying into Pets.com and eToys and Webvan, they were the ones selling out.

Most nanotech start-ups are a long way from producing products, revenues, or profits, but none of that stopped Internet companies from going public in 1998 to 2000. As soon as a bull market finds its legs, you are going to see a hot IPO market in nanotech companies. Don't be in a rush, and don't get carried away by the hype.

Most of them will be run by brilliant scientists who will dazzle you with their theoretical brilliance. Dr. Ralph Merkle just left Zyvex, one of the leaders in racking up VC funding. Merkle is a genius, and whatever company has him on the letterhead is going to look promising. In Merkle's last job, he developed the encryption systems that make it possible to conduct secure transactions over the Internet.

But I don't see him making any quick profits in nanotechnology. Merkle is a leading light in nanotech, but his personal belief is that nanotechnology will banish all disease and decay in the human body. And, as a director of the Alcor Life Extension Foundation (based in Scottsdale, thankyouverymuch), he's got Ted Williams's body on ice to prove he is committed.

Merkle's involvement in cryonics doesn't make him a nut. But it makes him somebody with whom I wouldn't want to be a buy-and-hold investor.

If you want to get on the nanotechnology bandwagon, invest in IBM. I know, boring. In comparison, Dr. Frozen Corpse will at least give you a wild ride. But IBM is going to do something exciting with nanotechnology.

IBM has been involved in nanotechnology since 1988. Its first project, in typical dopey IBM fashion, was to spell out "IBM" with a few xenon atoms across a nickel crystal surface. It plodded along, however, and has made a huge commitment to the technology, just as it's getting hot. IBM is focusing on storage with a technology called Millipede that will be able to store 40 times more information in a given area than hard drives. It is also developing carbon nanotubes, a lattice of carbon atoms that is light, strong, and has superconducting properties that allow it to transmit electricity with no energy loss.

How could this make a difference to a company the size of IBM? Here is where it gets interesting, and I have to do a bit of Feynman-like hypothesizing to make my point.

IBM was in this position once before, with personal computers. It was not the first in the business, but it came with the most resources and far more credibility than the unknown start-ups with which it was competing. It created the market, revolutionized the business, but let the fortune get away. By not controlling the intellectual property, IBM let Intel and Microsoft become mega-companies. Before IBM, both were niche players. IBM anointed them as hardware and software providers for the industry-standard product, which they were allowed to duplicate and give to IBM's competitors. In a different world, everything that Microsoft has and Intel has would belong to IBM. In that world, IBM would have a market capitalization of $650 billion, not its current $150 billion. Instead of $3 billion in annual net income, it would have $14 billion.

Do you think IBM will let that happen again?

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Business, Energy