by David Hwang and Jurron Bradley, Lux Research

April 12, 2010 – The impact of the recession that started in 2008 has been unavoidable in nearly every sector. While many industries have suffered, the financial crisis critically wounded two — construction and automotive. For example, the U.S. recorded 54% less new construction starts in April 2009 compared to April 2008, and saw 18% fewer automobile sales in 2008 relative to 2007. While these two sectors dominate news cycles, the electronics industry also lost steam in 2008. For example, shipments of electronic equipment fell worldwide in Q4 2008 relative to Q4 2007 — by 22% in Japan, 15% in China, 13% in Europe, and 3% in the US.

The output of these three sectors is large, accounting for 10% of the U.S. GDP in 2008 and 9% worldwide. And since these are big end markets for nanomaterials and their intermediates, disruptions within them ripple back up industry value chains for nanotechnology (Figure 1). The downturn impacts nanotech value chains via two separate but interacting mechanisms:

Figure 1. Shocks to the output of nano-enabled products ripple back through value chain.

• Shrinking addressable markets. When a large end-market like automotive contracts, multi-walled carbon nanotube (MWNT) suppliers like Bayer MaterialScience and Arkema have a smaller market for their materials at the opposite side of the value chain. For example, if 13.2 million vehicles were sold in the US in 2008 compared with 16.1 million in 2007, this would mean 18% less material sold if adoption of nanomaterials in the sector remained flat.

• Protracting adoption cycles. However, adoption rates for new technologies don’t stay flat in downturns — they lengthen as cash-strapped companies and cautious managers avoid risk and defer game-changing innovation. When General Motor’s (GM) biggest issues are negotiating what portion of the company will be nationalized, you can bet with confidence that development projects like car dashboard MRAM chips — developed by companies like Everspin Technologies and enabled with ceramic-based nanoscale thin films — are the first to be killed, or at best delayed.

To understand how the current recession will impact the nanomaterials business, we updated our revenue model of the nanotechnology value chain. At the highest level, we found that the market for products touched by emerging nanotechnology totaled $254 billion in 2009 and will reach $2.5 trillion in 2015 — down 32% and 21%, respectively, compared to our previous forecast (Figure 2). Our projections find that:

• The nano-enabled product impact varies by industry; auto’s worst, healthcare’s untouched. Although we see declines of some magnitude in virtually every industry in 2009, their depth and recovery time vary greatly — leading to widely different outcomes by 2015. In that year, we expect nano-enabled product revenue in materials and manufacturing to be down by 38% from our previous estimates, and in electronics by 14% — but for healthcare and life sciences to recover fully.

• Two nanomaterials and two types of nanointermediates get the most blowback. Among materials, carbon nanotubes and ceramic nanoparticles get hurt most due to their outsized applicability in the automotive and construction sectors; the relative diversity of applications for ceramic nanoparticles, however, will enable them to recover more quickly. Among nanointermediates, nanocomposites and coatings will take the biggest hit; however, both should return near previously projected market sizes by 2015.

Figure 2. Emerging nanotech revenue is predicted to reach $2.5 trillion in 2015.

Conclusion

The recession will come to an end, but its impact won’t. Because of long replacement cycles and lengthy design-in times in automotive and construction, players across the nanotech value chain will be feeling the aftershocks well into the next decade. Corporations should co-opt the situation by investing to outrun rivals and exploiting cash-strapped start-ups for all they can. Start-ups, on the other hand, face a stark choice: get to cash-flow positive or go bust. Governments that have poured money into nanotech initiatives for economic development must wield creative incentive mechanisms, like R&D grants in lieu of tax credits for start-ups, to keep from losing their anticipated payback in jobs and GDP growth.

Biography

David Hwang received a BSE in Bioengineering from the University of Pennsylvania and is research associate at Lux Research Inc., e-mail [email protected].

Jurron Bradley received his BE from Vanderbilt U., and his PhD from Georgia Institute of Technology. He is a senior analyst at Lux Research, 75 9th Avenue, Floor 3, Suite F, New York, NY, 10011 USA; ph.: 917-484-4865; e-mail [email protected].