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Perspective: Nano-hype and market reality

Sevin Rosen Funds' Daniel Leff says nanotechnology is still maturing as a science, let alone a technology, and a backlash against its over-the-top promises was entirely predictable.

    Nano-hype is everywhere.

    Scientific journals, market research organizations and the financial and business press cover nanotechnology from almost every angle. Wall Street has jumped on the bandwagon: Merrill Lynch published the first nanotechnology research report in September 2001. Science magazine named nanoelectronics the Breakthrough of the Year in 2001, and NEC has touted its nanotechnology research in corporate ads.

    Unfortunately, all this attention has done more harm than good. In an inevitable backlash, many analysts are bearish on nanotechnology's outlook. By some measures, they're right. Nanotechnology is still maturing as a science, let alone a technology. There are only a handful of companies--Veeco Instruments, for example--with nanotechnology-based products that have generated significant revenue.

    However, the focus on nanotechnology as a "market space" is misdirected. Nanotechnology is an enabling and potentially disruptive technology that can solve problems in industries as disparate as telecom, biotechnology, microelectronics and energy. Currently about 100 start-ups are developing nanotechnology-based products that will be marketable in the next three years.

    Applications of nanotechnology are enabled by nanomaterials, which have novel optical, electronic, magnetic and other properties. These materials include semiconductors, metals, metal oxides, carbon materials and organics, and are the infrastructure or building blocks for nanotechnology.

    Currently about 100 start-ups are developing nanotechnology-based products that will be marketable in the next three years.

    A nanometer is about 100,000 times smaller than the diameter of a human hair, which means nanotechnology-based devices work on a very, very small scale. The size of a nanometer is important because quantum mechanical properties of electrons and photons and atomic interactions inside matter are most heavily influenced at that scale. Think of a pebble thrown in a pond whose waves ripple outward across the entire surface of the water; the pebble is much smaller than the mass of the water, yet it can affect its behavior in its entirety. Nanometer-scale structures can control fundamental properties of materials without changing the materials' chemical composition.

    Companies working with nanotechnology fall into six categories: nanomaterials and nanomaterials processing, nanobiotechnology, software, nanophotonics, nanoelectronics and nanoinstrumentation. There are just under 40 companies focused on the nanomaterials and nanomaterials processing markets. These companies, part of the next level of infrastructure building, are developing the materials and methods to manufacture nanomaterials-based products.

    Of the other five categories, the most interesting are nanophotonics, nanobiotechnology and nanoelectronics. These areas use nanomaterials and nanoscience concepts that have evolved rapidly over the past five years. Start-ups with the most potential in these areas have significant "know-how" as well as a strong portfolio of intellectual property, world-class researchers and a product under development that targets a specific and large market.

    Nanophotonics companies are developing highly integrated subwavelength optical-communications components using a combination of nanomaterials and nano-manufacturing technologies. These approachs to manufacturing optical components allow rapid prototyping, high-performance advantages, smaller form factors and lower costs.

    While nanotechnology investments represent only 2 percent of the total capital raised in the first quarter of 2002, it has increased fivefold since 1999.

    Nanobiotechnology is a hybrid discipline that combines biology and nanotechnology to develop drugs and make diagnostic instruments. Nanobiotechnology companies are building a variety of biological diagnostic tools that can detect specific biological molecules or individual strands of DNA. These devices can provide far faster, cheaper and more comprehensive diagnoses of complex diseases. For example, a single nanochip could provide a comprehensive diagnosis from one drop of blood in a one-day turnaround. Other applications will include new tools for rapid drug discovery.

    Nanoelectronics includes electronic and opto-electronic devices in which individual and ordered assemblies of nanometer-scale components function as active device elements. Potential nanoelectronics products include sensors, memory, logic, passive optical components, field emission devices, flat-panel display, and light-emitting diodes.

    Nanotechnology investments may represent only 2 percent of the total capital raised in the first quarter of 2002, but that is a fivefold increase since 1999, according to PricewaterhouseCoopers. There are still chasms to be crossed in terms of product suitability, but the outlook for companies using nanotechnology products is quite promising.