In the past few months, most of us following the news wires will have seen the word nanotechnology, or will have seen the announcement of President Bush allocating some $3.7 billion to the research and development of it. Some of us will have seen it long before that, as President Clinton announced allocating some $500 million for nanotech research in 1999. And finally, some of us may well have been around in 1959 when Dr. Richard Feynman first brought the concept into the public arena.

But whether you've never heard of nanotechnology or you're already combing the landscape in hopes of reaping killer investment ideas from this science, we hope that we can offer you some useful insight from what we've learned during our four years of studying this field.

We'll start with an overview of the science and then move on to those companies that are poised to commercialize the technology and hopefully prosper.

Small means small
In simple terms, nanotechnology is the science of all things small, and when we say small, we mean small. A nanometer is one billionth of a meter, or, put another way, a nanometer is 1/10,000th the thickness of a human hair. Your DNA measures approximately 2 to 3 nm (nanometers are normally indicated as nm).

In 1959, observing that nature works at these nanoscule levels of measurement, Dr. Feynman concluded that man could work at them, too, in a seminal speech titled "There Is Plenty of Room at the Bottom." Thus, the embryonic science that became known as nanotechnology was born.

Today, that science and capitalism have joined forces to produce invisibly tiny materials that will affect all of our lives. The actual term nanotechnology, by the way, was first uttered in the 1980s by Dr. K. Eric Drexler while he was an MIT undergraduate. He made it famous in his book, Engines of Creation: The Coming Era of Nanotechnology.

Nanotechnology has now become a unifying science of what were once distinct and separate disciplines; it cuts across physics, chemistry, biology, and engineering.

The building blocks
From 1959 until the mid-1980s, there was little actual development of Dr. Feynman's original ideas. Then in 1986, scientists led by Dr.Richard Smalley (no, we're not making that name up) unearthed a third form of pure carbon. They subsequently received the Nobel Prize for their work in discovering fullerenes. Fullerenes are large carbon-cage molecules. By far the most common one is C60 -- also called a "buckyball."

Soon after this, the discovery of a fourth form of pure carbon was made by an NEC employee, Sumio Iijima, which led to the production of carbon nanotubes. These are the building blocks of all things nano, with unique properties combining strength and weight. They're 100 times stronger but six times lighter than steel, coupled with the electrical conductivity of copper and the thermal conductivity of diamonds.

The unique and novel properties of carbon nanotubes and fullerenes combined with the ability to see and manipulate individual atoms using advanced microscopy and advanced photolithography would finally open up a world of possibility -- the world of nanotechnology.

The breakthrough
Finally, in 1996, as IBM (NYSE:IBM) scientists worked on ways to produce smaller, faster, and cheaper computers, they got very cute with the corporate logo and in a famous breakthrough individually manipulated 35 atoms to line up and form the letters "IBM." They moved the atoms using the tip of a scanning tunneling microscope (STM), itself a breakthrough in the field of microscopy in the 1980s. Since then, the STM has evolved into the atomic force microscope (AFM), one of the advanced tools of metrology in the nano era.

Evolution vs. revolution
Nanotech's evolution has been both necessary and inevitable. It means different things for different industries, however. In many fields, all nano will do is help create the next stage of that industry's evolution. That is, in many cases nano is needed, but not revolutionary.

In electronics, for example your current PC's Pentium 4 works at the 130 nm level, but Intel (NASDAQ:INTC) has recently announced the launch of Prescott, a 90 nm chip. Intel and Advanced Micro Devices (NYSE:AMD), as well as some other companies, are working on solving the complex engineering problems involved in producing chips at the 45 nm, 30 nm, and even smaller levels -- a process that will postpone the industry meeting the limits of Moore's Law, the accepted rule that computing power and speed will double approximately every 18 months.

Buyer beware
Investors should know that nanotechnology is not likely to produce a revolutionary upstart that will leapfrog the established electronic giants with advanced technology. We're not saying it's impossible for a true Rule Breaker to emerge, but it won't be easy. With fabrication plants costing $2 billion to $4 billion each, it probably will be prohibitively expensive for smaller companies to land the kind of financing it would take to unseat firms with deeper coffers.

Of course, if one of the major players does not keep up, or fails to solve the inherent problems in the technology, a competitor could gain an edge and steam ahead. And there is definitely more room for Rule Breakers in the nanomaterials and nanobiotechnology sectors, but investors must keep a keen eye on companies able to exploit legitimate breakthroughs and pretenders that languish forever in penny stock land.

Why it's worth watching
Nanotechnology will be important for two reasons. First, it promises an "industry" forecasted to provide $1 trillion in revenues by 2015. Second, it will impact your life irrespective of whether it meets those heady forecasts or not. Indeed, you already may be using products with nanoparticles in them and not even know it. Everyday things like tennis balls, fabrics, and sunscreens have been enhanced by using nanotechnology.

The science will further influence our lives as its prospects will have major societal effects that we'll all have to deal with. For example, do we want nano-replicators that can reproduce themselves to be freely available in these days of worldwide terror? Think about the implications for military use, or nano machines powering their way around your body to deliver their payload of drugs to the precise target that requires treatment.

All of these issues are slowly coming to the fore as scientists continue to make steady progress with the technology. Indeed, there are already dire predictions that all this will lead to the world being covered in a grey goo of miniature nano-machines or similarly defiled by a host of other potential environmental disasters.

The nano database
We first "discovered" nanotechnology during a Motley Fool online seminar four years ago when we were looking for future potential revolutionary industries. We identified the science of nanotechnology as having the potential to revolutionize practically every current major industry in the 21st century and beyond. It is a science that's that big -- and yet, ironically, so small.

Since then, we have tasked ourselves in monitoring all things nano. So far we have identified over 450 companies, the records of which we maintain in our database, that are currently active in either R&D or actually producing nano-related products. The vast majority of these companies are still currently private. Another group includes industry giants like IBM, Intel, AMD, Hewlett Packard (NYSE:HPQ), Motorola (NYSE:MOT), Xerox (NYSE:XRX), Dupont (NYSE:DD), General Electric (NYSE:GE), Sony (NYSE:SNE), and others.

By our estimates, 50% of the companies in the Dow Jones Industrial Average are currently producing or working on nano-related products. Still further are a group that is primarily non-U.S. listed, and, as such, less likely to offer U.S.-based investors the best investment opportunities. This group includes companies from Japan, Germany, and China. In total there are 15 non-U.S. countries working at the forefront of nanotechnology.

Which brings us to the companies we watch closely. These are the 40 or so companies that are both currently publicly traded on a U.S. exchange, and are of a size where any nano development can indeed revolutionize the company concerned, if not the industry they occupy. We've grouped these companies into three distinct industries: nanobiotechnology, nanoelectronics, and nanomaterials.

In Part 2 of this special, we will look at each of these in turn and introduce the companies that are already commercializing the science of nanotechnology. We hope you'll come back to and join us then.

See what other Fools are saying on our Nanotechnology discussion board. And if you're the type of investor who likes searching for the next "big thing" in a world of small caps, try a free trial to Tom Gardner's Motley Fool Hidden Gems.

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