3M: Great at the Little Things

Recently, a great deal of investor interest in nanotechnology has been focused on a few select, publicly traded companies like Rule Breakers recommendation Harris & Harris (Nasdaq: TINY  ) and Motley Fool Hidden Gems selection Flamel (Nasdaq: FLML  ) .

Still other investors are itching for the first nanotech company -- be it Nanosys, Molecular Imprints, Nantero, or some other company -- to go public. The interest and excitement are well-founded, but they mask a more sober reality: Most of the cutting-edge research and development of practical applications for nanotechnology are being pursued by Fortune 100 companies like Intel (Nasdaq: INTC  ) , GE (NYSE: GE  ) , Hewlett-Packard (NYSE: HPQ  ) , 3M (NYSE: MMM  ) , and DuPont (NYSE: DD  ) . This article documents one of the more staid of the bunch: 3M.

The Minnesota-based manufacturer, best known as the maker of Scotch Tape, Post-It Notes, and Thinsulate, has been quietly pursuing an aggressive strategy with regard to nanotech, and it is likely to reward long-term investors with solid, albeit not spectacular, gains.

While much of the attention on 3M of late has been focused on its modest second-quarter earnings, the replacement search for James McNerney, and even its recent acquisition of CUNO, it must be noted that a sizeable portion of 3M's $1.1 billion annual R&D budget, as well as a number of its 700 research scientists, have been redirected to nanotechnology-related pursuits.

The news shouldn't come as any great surprise to followers of the company. 3M's business model has long been focused on innovation, and its management team has prided itself on being able to crank out a seemingly endless number of groundbreaking products. In fact, for many years, 3M strived to generate at least 50% of its revenues from products that didn't even exist five years earlier. I don't know whether the company still has this as a formally stated policy, but given its emphasis on nanotechnology, it is clear the same innovative spirit is still at play.

Nanotechnology within 3M
For instance, 3M has publicly acknowledged that its nanoparticle-based Filtek treatment --which is used for restoring teeth -- has superior strength, is easier to polish, and retains its shine much longer. Granted, dental filler isn't the largest market in the world, but it is indicative of how the company is using advances in the material sciences to gain market share across a variety of product segments.

There is no reason to think that the company won't use nanotechnology to improve its ScotchGard protectant to go head to head with Nano-Tex -- a potential nanotech Rule Breaker that has reshaped the textile and clothing industries by employing nanofibers to make pants stain-resistant.

A more exciting development is 3M's new nanocomposite, which reportedly mimics bone generation. If successful, the material could allow 3M products to be used in a new generation of manufactured hip replacement parts and possibly even treat broken bones.

In the company's fast-growing field -- the life sciences -- nanotechnology is poised to revolutionize how health-care products are both manufactured and delivered. In the area of drug delivery, 3M has reportedly already developed a painless way of injecting drugs into the body using a system of approximately 1,000 microneedles. While this specific technology doesn't classify as nanotechnology, it is plausible that nano-scale needles (manufactured in the form of skin patches) will soon be designed to make an even more effective drug delivery system. In the process, it is also feasible that the system will be constructed to administer a multiple numbers of drugs. Such a device could find a huge market by freeing up elderly patients from having to remember which pill to pop when.

Similarly, the company's newly approved Aldara skin cancer cream -- although it has not yet generated sales expected -- is likely to be improved by nanotechnology. If L'Oreal and Novavax are already employing nanoparticles to more efficiently and effectively deliver skin creams and pharmaceutical treatments into the skin, I think it's safe to assume that 3M is on the same path.

Nanotech, energy, and water
Another area in which nanotechnology is going to reap significant rewards is in the field of energy. While 3M is not a producer of energy, it has a huge stake in how energy is transmitted. The growing demand for electricity, together with the problems of siting new transmission lines, is placing a huge strain on distribution companies. One way to neatly address both issues is to create new materials that can more efficiently pump electrons through the wires.

3M is doing exactly that with its new composite conductor. However, as scientists continue to develop new materials or, alternatively, learn to spin carbon nanotubes into ever-longer wires (they currently have a very long way to go, but progress is being made), the possibility for upgrading the entire 250,000 miles of old wires that make up today's transmission grid with new, exponentially more powerful wires is a real possibility.

A fourth area in which 3M is poised to unleash the power of nanotechnology is water. Water is already a $400 billion global market and is expected to grow even larger. Carbon nanotubes, nanoparticles, and nanofilters are all actively being investigated to improve the efficiency and effectiveness of water filtration and production. Obviously, GE, Siemens, Pentair, and others aim to capture a large share of that market, but if 3M can glean even a portion, it will go a long way toward quieting those critics who feel 3M overpaid for CUNO (the Meriden, Calif.-based water filtration company it purchased earlier this spring).

3M and RFID
Finally, 3M is also working in the field of radio frequency identification (RFIDs). The news is hardly surprising, given the company's rich tradition in the opto-electronics field. But imagine the synergy created when this and other sensor-related technologies are incorporated into the company's 50,000 other products. The result should be a slew of "smart" products that can be managed for maximum operational efficiency.

The strategy will place 3M in direct competition with Intel, IBM, and others who are also striving to employ electronic components in manufactured products. But it's not really important at this stage whose strategy is superior. These corporate giants' presence at the forefront of the coming age of "smart" product convergence is what truly matters. When this convergence materializes, it will revolutionize commerce as we know it, and there will likely be enough room for a few of the first-movers to profit from it.

And given 3M's rich tradition in the material sciences, opto-electronics, electronic displays, graphics, and pharmaceuticals, it's apparent that it has always been great at finding little things and turning them into huge marketplace winners. There is every reason to believe that the company will continue this legacy with the "littlest" of technologies - nanotechnology.

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Fool contributor Jack Uldrich has been accused by teachers and friends alike of thinking small since grade school. He is the author of The Next Big Thing is Really Small: How Nanotechnology Will Change the Future of Your Business. He owns shares of 3M, Intel, IBM, and Flamel. The Fool has an ironclad disclosure policy.


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