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A Robot That Could Hit A Wall


Scooba may mean nothing to you today, but by the holidays, chances are you'll crave one. Scooba is a sibling to Roomba, the robotic vacuum cleaner beloved by reviewers -- BusinessWeek recently gave it a design award -- and consumers, who in three years have bought 1.2 million units. Scooba, set to go on sale this fall, doesn't just pick up dirt. It also washes, scrubs, and dries tile, wood, or linoleum floors, all in one pass. Price: about $399.

Roomba, Scooba, military vehicles called PackBots, and more; all are creations of iRobot, a Burlington (Mass.) outfit that in 1990 sprang from Massachusetts Institute of Technology. Scooba isn't all that iRobot is getting ready to sell. It's also preparing an initial public offering of stock to be led by Morgan Stanley (MWD) and JPMorgan Chase (JPM). Key terms of the deal -- price, amount of equity offered -- have yet to be estimated, and iRobot execs are keeping quiet. So it's too early to judge whether the IPO is worth a bid. Just the same, iRobot's registration statement includes plenty of data for investors to suck up and crunch.

THERE'S LOTS TO LIKE about iRobot, starting with 19 U.S. patents and 25 more pending. Then there is its record of bringing to consumers the sort of robotics Chief Executive Officer Colin Angle helped install on the 1997 Mars rover Sojourner. It's also heartening that iRobot is diversified via its military-industrial robots. Sales of this line, including some of the $50,000 to $115,000 PackBots used in Iraq for bomb disposal and reconnaissance, added nearly a quarter of last year's total revenue. Investors will like iRobot's relatively modest executive salaries (for Angle, $234,520 in 2004), and its adherence to the increasingly rare one-share, one-vote rule on corporate matters. (Dolby Laboratories (DLB), DreamWorks Animation, and Google (GOOG) are all recent issues that don't.) Best of all, iRobot meets the top criteria on its mission statement: No. 1, Build Cool Stuff; No. 2, Deliver Great Product.

That said, one can't help but notice that iRobot is faltering at item No. 3: Make Money. Although the company last year did net its first annual profit, $219,000 on $95 million in revenue, it lost $18.2 million over the two previous years. This year's first-half showing is not encouraging. Despite much higher revenues ($43 million vs. $28.6 million in the comparable 2004 period), iRobot's loss widened to $7.2 million from $3 million. The company has kept going by selling $38 million in preferred stock to venture capitalists.

As always, there are worries, such as iRobot's reliance on a single Chinese contract manufacturer for its consumer products and a sole Ohio maker for its military robots. In addition, while iRobot sells Roomba on the Web at its own site and at such others as Amazon.com (AMZN), it says it enjoys distribution at some 7,000 retail outlets, including weighty chains such as Best Buy (BBY), Home Depot (HD), and Target (TGT). This might be overstating iRobot's reach, however. One afternoon, I went looking for Roomba near my Florida home. None at Best Buy, none at Home Depot, none at Target. Clerks at Best Buy and Home Depot said Roomba hadn't been stocked since the holidays. I did find 13 Roombas at Bed Bath & Beyond (BBBY), but they were partly hidden by displays for George Foreman Grills and the Hoover FloorMate SpinScrub 500 hard floor cleaner. I later located two more Roombas at Sears (SHLD).

If the Scooba does everything iRobot claims, shoppers will find it, online or off. With stock in iRobot likely to be offered near Scooba's debut, underwriters' inventories are a good bet to sell out fast. What might the shares be worth? Rivals' multiples won't be much help. According to Standard & Poor's (MHP) Capital IQ unit, the Hoover brand's parent, Maytag, has an equity value of nearly 0.4 times sales, while Sweden's Electrolux goes for about the same multiple. Such iRobot rivals for government sales, General Dynamics (GD) and Lockheed Martin (LMT), go for price-sales ratios of 1.2 and 0.8, respectively. Count on iRobot, with revenues of $110 million in the past four quarters, to start trading on NASDAQ at a much higher valuation -- and risk.

By Robert Barker


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