Saturday, February 28, 2015

Thin Film Electronics Gains Momentum

OpenSense from Thin Film Electronics
Thin Film Electronics, the printed electronics company based in Oslo, Norway, is poised to benefit greatly from the Internet of Everything. Since I first wrote about the company in September, several important news items show that the company is rapidly gaining momentum.
  • Revenue Growth - Revenues for the 2014 full year grew 121% over the 2013 full year.
  • Large Orders - After shipping it's first order with a 7 digit unit quantity last year, the company has a new 13 million unit order for its Electronic Article Surveillance labels.  
  • Partnerships -The company has announced a strategic partnership with Xerox for the high-volume production and sales of Thinfilm Memory labels. This will reduce future capital requirements by leveraging Xerox manufacturing resources.
  • NFC for Bottles - OpenSense™, a near field communication sensor for bottles, is a new product improves product security and enhances consumer engagement. Now your smartphone will be able to talk to your bottle of Johnnie Walker scotch.
  • Listing on Oslo Børs - On February 27th, shares of Thin Film Electronics were listed on the Oslo Børs and a registration has been filed for an American Depositary Receipt program in the United States. This will increase the company's visibility and widen the investor base.
Each of these represent an important breakthrough. Together, they appear to be significant momentum.  I will be watching this company closely with high expectations.

What would you like your scotch to say to you?

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Thursday, February 26, 2015

Your Personal Moat

Bodiam Castle, a 14th-century castle near Robertsbridge in East Sussex, England
Bodiam Castle, a 14th-century castle near Robertsbridge in East Sussex, England

Last week we explored the ways that businesses can build an economic moat to provide protection from competition. I believe that it is also possible to build a personal moat that provides a buffer against the challenges we face individually.

Some of the key elements of a personal moat include:
  • Knowledge - Information is power. If you have knowledge and understanding of important concepts in a field that is in demand, you can use that knowledge to navigate through the channels of change.
  • Skills - Skills represent your ability to harness knowledge to accomplish specific goals. People who can get things done are always in demand.
  • Creativity - Creativity is the ability to synthesize ideas from multiple sources into a new idea or a new solution to a problem. 
  • Relationships - It's not just who you know. It's how you have treated them and how they feel toward you. Treat everyone you meet with respect and kindness.
  • Resiliency - We all have difficult days, even difficult years or decades. But the only hope of success is to keep pushing forward with new attempts and new strategies to succeed. In the darkest days of World War II, Winston Churchill told the world "If you are going through hell, keep on going!"
With the rate of change accelerating rapidly, the value of a personal moat grows everyday.

What are you doing to enhance your moat?

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Thursday, February 19, 2015

Build Yourself a Moat

Image of Baddesley Clinton from Museo8bits
The moated manor house of Baddesley Clinton in Warwickshire, England
In the ancient and medieval periods, cities and castles were often built with moats to protect them from outside enemies.  These deep trenches were built next to the outer walls and often filled with water to make it more difficult to reach and breach the walls.

The metaphor of moat building is often applied to business. In 1999, Warren Buffet pointed out that “The key to investing is . . . determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”  Those moats protect the company from excessive competition and allow them to provide above market rates of return.

In their 2014 book, Why Moats Matter, Heather Brilliant and Elizabeth Collins identify five major sources of competitive advantage or economic moat:
  • Intangible Assets include brands, patents or licenses that limit the ability of other companies to compete against you.
  • Cost advantages allow you to provide your products or services at a lower cost than your competitors.
  • Switching costs are the inconveniences or expenses a customer will incur to move from your company to a competitor. 
  • Network effects cause the value to of your products or services to expand as more people use them.
  • Efficient scale is a situation where a market has a size limitation that discourages competition.
Why Moats Matter book coverAs business people, we need to find ways to build these types of moats around our businesses.  As investors, we need to seek out and buy companies that have strong and increasing competitive moats already in place.

What type of moat are you building?

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Thursday, February 12, 2015

Electron Beam Melting is Hot

Custom Cranio-Maxillofacial implant
Custom Cranio-Maxillofacial implant
The Swedish Arcam AB, which produces 3D printers that use Electron Beam Melting, does not get much news coverage in the United States. However, the company's 2014 financial results show that it is one of the most interesting success stories in the 3D printing space.

Net sales for 2014 grew 70% over 2013 to $40* million while net income increased 57% to $6.8* million. The number of machines shipped grew from 25 to 35 and the order volume increased from 27 to 42. With five new orders in January, the Arcam is starting the year with a nice backlog.
Low Pressure Turbine blade in γ-titanium aluminide.
 Courtesy of Avio Aero.
Low Pressure Turbine blade in γ-titanium aluminide.

Courtesy of Avio Aero.

Arcam's machines use a powerful electron beam to selectively melt powdered metals, primarily Titanium and Cobalt. The most import applications are orthopedic implants and aerospace components.

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*Amounts converted from Swedish Kroner using Google Finance.

Thursday, February 5, 2015

The Benefits of Going Nowhere

Kansas City Union Station
Kansas City Union Station
Last weekend we visited the Union Station in Kansas City which is one of the most beautiful and impressive examples of Beaux-Arts architecture in the state of Missouri. When it was built in 1914 by a consortium of 12 western railroads, it was the second largest train station in the United States. Between the end of the Civil War and the construction of Union Station, those railroads had linked together all of the important cities west of the Mississippi river.

Most of those places were not important cities at the time the railroad arrived. For the most part, railroads like the Atcheson, Topeka and Santa Fe built tracks that initially led to and through empty prairies, mountains and deserts with little opportunity for immediate revenue. The railroad executives and their shareholders were confident that creation of the railroad would bring the settlers who would create the demand for passenger and freight services.

Transcontinental Railroads via
Some of the railroad ventures failed, but those that built their routes boldly and backed them up with solid operational practices and a strong customer focus thrived. The Atchison, Topeka and Santa Fe is now part of the Burlington Northern Santa Fe which is the United States' second largest railroad.

Building into nowhere worked in the 19th century and continued to be a successful strategy in the 20th and 21st centuries. Henry Ford famously quipped "If I had asked people what they wanted, they would have said faster horses."  When Apple and IBM created the personal computer, few people had expressed a need for one. When the iPhone launched, how many of us felt a strong need to play music or capture video with our phones?

Providing products and services that people want is essential to maintaining a successful business. But the great breakthroughs come from providing things that people don't know yet that they want. I am reminded of the five year mission of the Starship Enterprise, "to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before."

Where are you going?

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A Ride on the Santa Fe in 1955