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Tiny revolution

By Justin Gillis and Jonathan Krim
The Washington Post

The blue steel column standing bolt upright in a warehouse in Houston looks like nothing so much as a rocket ship, ready to soar to the heavens. It can’t really fly, but the people who built it like the symbolism. Along with many folks in American science and industry these days, they hope the field known as nanotechnology is finally ready for liftoff.

The blue column contains a weird new furnace, of sorts, evidently the largest of its kind in the world. The furnace makes fluffy black stuff that “looks like soot,” said Bob Gower, head of the company building the device. “But it’s very sophisticated soot.”

Right now, it sells for 39 times the price of gold. The black stuff consists of exceedingly small tubes of carbon, “the strongest thing you’ll ever make out of anything in the universe,” said Richard Smalley, the scientist who won a Nobel Prize for helping to discover similar objects.

Someday, when the price falls and the quality improves, this black stuff might be woven into a cable thinner than a human finger yet capable of carrying the world’s entire supply of electricity. Or it might be used in computers hundreds of times more powerful than those now available but tiny enough to wear on a wrist. Or in impossibly thin, graceful bridges over which the heaviest trucks would roar without making a dent.


To watch what’s happening on Wall Street right now, you’d think that day had arrived.

Carbon Nanotechologies Inc., the company building the new furnace, isn’t publicly traded, but a few other companies with “nano” in their names are, and their stocks have roared off the launch pad lately. Nanogen Inc.: up 183 percent since the first of December and 503 percent since the beginning of 2003. Altair Nanotechnologies Inc.: up 502 percent since early 2003. Nanometrics Inc.: up 347 percent since early 2003.

Recalling the dot-com bubble years, Internet message boards are buzzing with chatter about nanotechnology stocks going UP! UP! UP!

For several years, government leaders have referred to nanotechnology as the “next industrial revolution,” and predicted that products based on it could be worth $1 trillion in a decade. Former House speaker Newt Gingrich has become a big booster. The Bush administration is pouring billions into nanotech research.

A few products have already trickled out of the laboratory into the marketplace — stain-resistant trousers, deeper penetrating lotions and longer-lasting tennis balls — and companies say more are on the way. Exceedingly spacious computer hard disks based on nanotechnology already have made a huge splash.

Yet even many people who believe in the potential of the technology are sounding warning bells about hyped predictions and the rush of investor enthusiasm.

“You’re buying the equivalent of an Internet stock a couple of years ago,” said Thomas Theis, head of physical science research at International Business Machines Corp., one of the biggest sponsors of nanotech work.

Is the nanotech trend something the average investor needs to jump on? Or is there a danger, instead, that average investors will be drawn in by rapid market gains — and then burned in the inevitable crash?

Near the end of six hours of interviews the other day in Houston, Smalley, a founder of Carbon Nanotechnologies and a professor at Rice University, stood before a display screen outlining potential uses of a branch of science he helped to invent. That science might, he said softly, help to solve the world’s energy problems, among many other possibilities.

People pay attention to Smalley, one of the prodigious brains of American science. He won the Nobel in 1996, along with two collaborators, for discovering a new form of carbon, difficult to make but intoxicating in its properties. In that first discovery, in the 1980s, atoms of carbon, which can form exceedingly tight bonds with one another, were linked together into structures unknown to science, forming tiny, incredibly strong balls.

The carbon balls were shaped like the famous geodesic dome of Buckminster Fuller, the visionary architect and scientist. Researchers named the new form of carbon buckminsterfullerene, and the balls were quickly dubbed buckyballs. Soon Smalley’s group and others showed that carbon tubes — buckytubes — could be formed in a similar way. Far stronger than steel, some of the tubes also turned out to be extraordinarily good at conducting heat and electricity.

These were seminal discoveries in nanotechnology, which seeks to manipulate matter at the level of individual atoms and molecules. Such techniques offer the possibility of dazzling new materials and devices.

Nanotechnology takes its name from nanometer, a unit of measurement. A meter is a little longer than a yard, and a nanometer is one-billionth of a meter. A human hair is roughly 100,000 nanometers wide. A buckyball is a little less than one nanometer across.

Glimpsing the possibilities, scientists spent the 1990s trying to manipulate matter at the nanoscale, as it’s called. By now they’ve built all sorts of experimental gadgets and discovered new properties, and efforts are afoot worldwide to commercialize the technology.

Some products have come to market, including lotion with the properties of the powerful sun blocker zinc oxide, but which goes on clear instead of thick and white. Also available are fabrics from a North Carolina company called Nano-Tex LLC, which are used to make pants and shirts for Eddie Bauer, Claiborne and other brands. The fabrics are coated with nano-sized particles that repel stains or wick away moisture, said Renee Hultin, North American president of Nano-Tex.

Overall, though, success in the laboratory has been remarkably difficult to translate into real-world products. It’s one thing to make a prototype of a device far too tiny to detect with the human senses; it’s another problem entirely to make millions of them reliably and cheaply.

“How do you move atoms and molecules around at a rate that you can make devices and structures that are commercially viable?,” said Julie Chen, a program director at the National Science Foundation who oversees grants aimed at solving the manufacturing hurdles.

Carbon Nanotechnologies is a perfect example. It has signed a slew of collaborations and filed many patents. But the company is just getting to the point that it can produce 20 pounds a day of buckytubes. And it can’t yet control exactly which kinds of tubes get made. Since the properties of buckytubes can differ wildly depending on their exact geometry, that is a big problem that limits the use of the material.

Because of the difficulties, most products likely to be commercialized in the next few years are mundane, including tougher fabrics, coatings and epoxies. They might well ensure profitability for some companies, but they’re not going to set the world — or the stock market — on fire.

Like other small companies leading the field, Carbon Nanotechnologies hasn’t had to go public to raise start-up funds. Private investors and big companies have been willing to foot the bill. Many nanotech companies say they are, at last, nearing the point of commercialization.

Nanosys Inc. of Palo Alto, Calif., uses materials other than carbon to do some of the same types of things as Smalley’s company. Nanosys has signed a big collaboration with a Japanese conglomerate that could bring much cheaper solar cells, shaped like Spanish roof tiles, to market in 2006. Nanosys is using nanotechnology to produce a key component in the solar cells, which will be made of material flexible enough to mold into nearly any shape.

“We have a realistic strategy for getting our technology into the market,” said Stephen Empedocles, director of business development.

The companies refer to many of these early products as “low-hanging fruit,” uses that can be made of nanotechnology even with primitive production techniques. But the companies can’t say how long it will take for the techniques to improve, the prices to fall, and more dazzling products to reach the market.

That uncertainty, though shared by nearly every scientist and investment professional working in the field, doesn’t seem to have dampened recent investor enthusiasm for nanotech stocks.

“Unsuspecting investors will get burned,” said Josh Wolfe, who heads Lux Capital, a venture capital firm that invests in nanotechnology companies.

As in the 1990s, when it was cool to put “.com” at the end of a company name, some companies, Wolfe said, are now positioning themselves as nanotech firms to try to lure investors.

In November, Microsignal Corp. changed its name to Nanosignal Corp. Harris & Harris Group Inc., a publicly traded venture capital fund that invests in nanotech companies, changed its stock ticker to TINY. “We’ve completely bet our company on nanotechnology,” said Charles Harris, who heads the New York firm.

As with the many firms during the Internet boom, nanotech stocks have been volatile, and have rocketed despite financial statements bathed in red.

Take Nanogen Inc., a San Diego company with products on the market that contain tiny chips for performing genetic tests.

On Jan. 2, 2003, it closed at $1.59 a share, with 38,200 shares trading hands. It ended trading Friday at $8.44 on volume of about 800,000 shares. The volume swings would seem to indicate many investors are churning the stock, looking for a fast profit. And they aren’t deterred by fundamentals: The company lost nearly $22 million in 2002 on revenue of $17 million, and losses widened last year, to $30.5 million on revenue of $6.7 million.

In a stock newsletter he writes, Wolfe warned in December that investors should be wary of “nano-pretenders” such as Nanogen, which he contended is not primarily employing nanotechnology. David Ludvigson, Nanogen’s chief financial officer, insisted his firm is using nanotechnology to “manipulate fragments of DNA” in making its products.

“The world is different post-Internet,” he said, calling comparisons to dot-com stocks out of line. Investors, he said, “understand that they should beware and look at the fundamentals.”

Harris and Wolfe both say that virtually none of the publicly traded companies represents “pure-play” nanotechnology.

Still, Wolfe’s stock letter has had “buy” recommendations on several nano-related public companies. He said the sector is likely to produce strong returns for the next couple of years.

But he warned that nanotechnology investing could end up looking like biotechnology, which has had sharp peaks and valleys for a more than a decade, often with vicious shakeouts as companies hit roadblocks in taking their technologies from the laboratory to the marketplace. Some smart investors have made money in that sector — but smart investors who really understand biotechnology have been the exception, not the rule.

Floyd Kvamme is a technology adviser to President Bush and one of the deans of Silicon Valley venture capitalists, the professional investors who help finance technology companies in their early stages. He sees important differences between the current nanoburst and the dot-com bubble.

“It would be hard to name a VC company that didn’t get caught up in the dot-com thing,” he said. “That’s not happening here.” Venture capital is fueling less than 10 percent of nanotech, and many venture firms won’t touch it until the industry demonstrates that it can efficiently bring real products to market.

And unlike the Internet boom, in which the “we get it, and you’d better get on board” arrogance was on constant display by dot-com executives, nanotechnology is riven with internal concern that it will fall victim to hype. That has made companies cautious in their public statements and careful not to promise too much.

Still, investment professionals warn that anyone considering jumping aboard the nanotech rocket had better scrutinize a company’s technology, its patents, its financing, the size of its potential market and — above all — the roadblocks it might face.

One of the biggest concerns is safety. Some early work suggests nanometer-size particles could have unexpected effects in the body, perhaps becoming toxins. More research is needed, and in the meantime, investors must factor in the possibility that a company’s products will be restricted or banned.

“What you really need to do is analyze that particular company: Is this a good stock? Is this a good price to buy it?” said Scott Mize, who founded a nanotech newsletter in California. “You have to go through that discipline. You can’t just say, ‘Oh, it’s a nanotech stock so it’s got to be good.’”