This robot maker is incorrigible
Everything looked so great about IRBT. The first-comer advantage in a hot new field, 2 mln Roombas sold, promising military applications, and God knows what other products these roboticists from MIT are working on at the moment. They started from scratch and they commercialized Roomba before everyone else - before Toyota, Hitachi, and others. And if they did it scratch, how much more can they do now, with $70M on the balance sheet? Now that they are going to hire the best talent and work on the new, ever more complex robotic devices? So the bullish thesis used to go.
Unfortunately, IRBT's management had a very different idea. The attitude they adopted boils down to the following:
a) We've just figured how to attach 4 plastic wheels to a circular-shaped plastic case, and this completes the mechanical aspect of our robots.
b) We think the Roomba is a versatile robotic platform. We can conquer the world with our vacuum cleaners.
c) Anyway, why bother? The job has been done, the Roomba is our answer. We're not that much interested in home robots anymore. Our main concern is to hire financial specialists who can help us manage our future cash flows.
So they proceeded to execute this plan. They insisted on producing only those robots that would have no moving parts, they launched three Roomba modifications (DirtDog, Create, and ConnectR), and they hired a lot of financial specialists, managers, and sales representatives. Results? A stale flagship product, a broken product line, and costs spiraling out of control.
The worst thing of all is that the management seems to be in denial. When you listen to their presentations, you realize that they are being perfectly sincere. They really don't understand why these pesky investors want them to bother with mechanical design, or why they should worry about the fact that the new Roomba-like robots have no identifiable useful tasks to address. They are comfortable describing themselves as "true pioneers", "visionaries", and "innovators". From job announcements on their site, one can almost think that the only necessary qualification for applicants is not being a mechanical engineer. They feel surprised that investors should worry about such trifles as insider sells, and when they lose a contract, their response is "it's because they are stealing our intellectual property".
Now, I'm not saying that there isn't a grain of truth in that part about stealing. But the distinguishing feature of paranoia is that a paranoidal person is always right about minor details, but dramatically wrong about the big picture. We can be pretty much sure that IRBT's former employee Jameel Ahed has used some snippets of code and drawings that he "borrowed" from the company's computer. But the real issue here is not the stealing but the state of IRBT's own R&D program. Because when you have a publicly run company of 300 people, and a college graduate takes some features of your 2002 design, and works on it in his father's dentist office with his 8 employees, and in the end, his robot is cheaper and better than yours, that's only possible if your R&D effort is dead as a doornail. To put that story in the right context, imagine that someone gets hold of the files related to the 386 CPU, retires to his garage and comes out four years later with a Pentium, and it turns out that Intel is still only preparing to launch the 486, what conclusion can you draw about this company? Is this the company you want to go long, regardless of the outcome of litigation? When that happens, a normal CEO should say: look, we really have a serious problem, it looks like our engineers have done nothing during these four years, we need to fire the head of our R&D program and half the engineers, and investigate what it was that made us less efficient than Ahed's dentist office operation. On the other hand, when the CEO is paranoidal or incompetent, he says: we're doing everything right, we're an innovative visionary company, and we've just lost the contract becuase Ahed stole from us some feature related to our track design.
The actual outcome of the legal case is still uncertain. I expect IRBT to lose this case, because the fact that the Army is stubbornly clinging to its choice of Robotic FX despite the risk of legal delays tells me that the issue is far more serious than the tiny 2% price differential. If there is a substantial difference in quality between the two robots, it will be easy for the defendent to prove that preliminary injunction would run contrary to the public interest, and that in any case, the alleged violations did not have any material effect on the final outcome. But the truth is, even if IRBT gets its injunction and wins the order, it will not matter anyway. The expected margin from the contract was somehting like 1% even before IRBT agreed to split the contract in half with Robotic FX. The only significance of this contract was to show who has better robotic technology, and in this respect IRBT has already lost.
Even more troubling is the launch of the two new products - the Looj and the ConnectR. If there are products that should never have been launched, it's those two. I claim that all the money spent to develop these robots was wasted. The Looj would be a niche product in any case, but who wants a toy car that cannot even handle corners? Too bad, IRBT, turns out that if rotating wheel is the maximum mechanical sophistication you're capable of, you can't even make niche products. And ConnectR? For the uninitiated, it's a Roomba with a video camera. The idea itself has some potential, but IRBT shot itself in the foot by making the camera work only one way. So they turned what could have been a convenient connector device into a spying device, indended to be used with people who don't mind being spied upon. And if you still think there is any market potential for this $500 crap, look at this spykee for comparison. Which do you think will sell faster? ConnectR is such a joke that even IRBT's consumer division president doubts it will ever make it to mass production. So why develop crap? Because they were desperate to convince investors that they can make something other than a vacuum, so they launched these two products whose target audience was not the potential customers, but IRBT's own shareholders. And by doing so, they succeeded in convincing this (by now, former) shareholder that they can't in fact make anything but vacuums.
I will seriously consider buying IRBT when they fire the current management and acquire some mechanical engineering firm. But for now, my thumb is down.