Google (NASDAQ: GOOG) has a knack for extending its reach into new, highly disruptive and exceptionally risky technologies.
Its latest buying spree has included eight robotics companies at a cost of hundreds of millions of dollars. While you likely aren’t familiar with these companies, they are well known in the robotics space: Redwood Robotics, Boston Dynamics and DeepMind Technologies.
For investors, these transactions tell us what’s ahead for Google.
There is no question that robotics combined with artificial intelligence has very exciting potential. But how Google will monetize its latest spree of acquisitions, and turn them into a viable revenue stream, is completely up in the air.
Companies such as Boston Dynamics have remarkable technical knowledge, but little practical use. Its Wildcat robot is an extraordinary creation, but leaves much to be desired in terms of a purchasable product.
R&D is phenomenally expensive in this field, and the payoff is generally murky because so few real-world robotics applications exist today.
Luckily, we’ve finally got some information on an application Google could be looking at for its up and coming Robotics division. The Wall Street Journal recently reported that Google was working with Foxconn to install robots in its factories.
The WSJ article highlights the fact that former Android Chief Andy Rubin was recently assigned to spearhead a new Google division. And he has been meeting with Foxconn to automate its manufacturing process.
Foxconn currently employs over one million people, but has expressed a strong interest in moving towards higher-end technologies to meet its customer’s needs. To make this transition Foxconn Chairman Terry Gou is exploring the integration of robotics into the company’s factories.
Foxconn is infamous for the being a critical piece of mass and questionably ethical labor for Apple’s suite of hardware devices. Apple – and almost every other consumer electronic manufacturer – originally chose to manufacture its products in China because of remarkably cheap labor. But that landscape is now changing as wages rise.
In theory Google’s robots could replace the workers in the Foxconn plant. If that happens, a new and even cheaper age of manufacturing labor will be upon us. Although talks are very early, this is a very exciting potential use case for Google’s Robotics technology.
Not only would a company like Foxconn be interested in Google’s robotics potential, but so would every manufacturing player that spends a large portion of its capital on human labor.
Exploiting cheap, international labor has been a trend in electronics manufacturing that has consumed the last several decades. Google’s latest acquisitions indicate we be near a tipping point where robots are actually cheaper than human labor. If Foxconn’s plans are any indication, it seems like we are nearing a tipping point.
Its now possible that in just a few short years a Google robot will be assembling your next generation Apple iPhone.
If this opportunity realizes its full potential, it could be a huge area of growth for Google, and create considerable efficiency for manufacturers. For this reason the rollout and expansion of Google’s Robotics initiatives is something to keep a close eye on for all current and potential Google shareholders.
Google shares have risen an impressive 45% over the last year. With a forward P/E of just above 20, investors are expecting some solid growth out of Google over the next couple of years. Up until now, most of this growth was expected to come from its steadily growing advertising business, as well as new initiatives like Google Glass.
With robotics in the picture, Google is a first mover in an industry with $100B+ potential. If this partnership becomes official and growth estimates are extended, Google’s share price could continue its ascent thanks to this latest growth business.
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