iRobot Finds Free Money

By Rich Smith | More Articles
November 20, 2008 | Comments (3)

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What's better than earning a fair day's wage for a fair day's work? How about getting paid for work you would probably have done for free?

That's basically what happened to iRobot (Nasdaq: IRBT ) yesterday, when the government announced it is giving not one, not two, but six grants to the little robot-maker -- $4.4 million in all.

Um, "million"? Did you mean "billion"?
No, unfortunately, that wasn't a typo. The six "Small Business Innovative Grants" that iRobot won from various U.S. Army and Navy departments yesterday tally up in the mere single-digit millions. Likewise, the funding awarded iRobot by Congress last week (to facilitate work on iRobot's new "Warrior" robot) totaled $2 million (again, with an "m"). Not exactly blockbuster awards. I'm pretty sure General Dynamics (NYSE: GD ) and Boeing (NYSE: BA ) spend more than that on Charmin for the executive washroom.

Still, iRobot says it will use Congress's $2 million will help it to "expand its product line" -- and as we know, iRobot has been planning to build the Warrior for quite some time already. Basically, this is free money from the Feds, which iRobot will use to build stuff that it will then turn around and sell ... to the Feds.

It’s a similar situation with yesterday's $4.4 million. iRobot is still building out its military product line, and the six Pentagon grants should help fund efforts to "develop technology related to human-robot interaction, unmanned ground and air vehicle coordination, semi-autonomous unmanned ground vehicle tele-operation and navigation, and electronics diagnostics and health monitoring."

Seems to me, therefore, that the big "theme" of the contracts is helping iRobot's ground robots coordinate with unmanned air vehicles -- flying robots -- built by firms like fellow Motley Fool Rule Breakers recommendation AeroVironment (Nasdaq: AVAV ) , Northrop Grumman (NYSE: NOC ) , and Textron (NYSE: TXT ) .

Good things might come in small packages
That $6 million in grants and Congressional funding amounts to a major boost to the company's $17.4 million research and development budget, even if only two-thirds of it is dedicated to R&D.

Will that allow the company to do more than keep hope alive? Will it lead iRobot to a time when the military can't help but throw real money iRobot's way -- in the billions, with a “b”? We'll see. Right now, though, it's still pretty speculative.

Read more about iRobot's military ventures in:

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Fool contributor Rich Smith owns shares of iRobot, AeroVironment, and Boeing. iRobot and AeroVironment are Motley Fool Rule Breakers selections. Why do we tell you all this? Because The Motley Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On November 21, 2008, at 12:59 AM, CaptDLight wrote:

Getting multiple millions from the Gov't. during these "hard" times is very important; iRobot is winning R & D prizes and I suspect that the neither iRobot or the Gov't can't talk about many of the things they are doing for security reasons...
My money is on this Company to surprise many of the Future Warrior "big" suppliers!
Report this Comment On November 21, 2008, at 6:30 AM, jzaientz wrote:

I'm a bit confused by this article. There is a critical tone to it but it's not clear exactly what is being criticized. Is the author critical of the US government for funding research and development? critical of iRobot for successfully applying for and receiving R&D grants? The author mentions that iRobot is going to use the money for work it already wanted to do. I would remind the author of a article on a financial website that there is a big difference between intent and ability. Like in any other industry, developing new emerging science based products for the government requires significant capital. Developing these products is highly risky because of the new science work required and because of the limited and unpredictable market (e.g. our government). For this reason, and others, the government provides research contracts. If the author is concerned that the government is paying for R&D now and then paying for the product later, there is clearly a tension there but it's a hard one to reconcile. The effort, skills, and material required to move a concept through R&D is not the same as is required to field and maintain the product. While different schemes are used by the government at different times to minimize cost, this split will always lead to the government, in some manner, paying for the different parts of the product development lifecycle and probably paying for them at different times.
Report this Comment On November 21, 2008, at 12:30 PM, catoismymotor wrote:

All I want to know is will I have a T-800 under the tree by next Christmas?

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