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Listen Up: Devising Commercialization Strategies for Next-generation Material Platforms Ross Kozarsky Senior Analyst Lux Executive Summit Asia October 21, 2015 Slide 2 Agenda Commercializing multifunctional materials: How did we do? Strategies for success in next generation material platforms Will you listen this time? 2 Slide 3 Agenda Commercializing multifunctional materials: How did we do? Strategies for success in next generation material platforms Will you listen this time? 3 Slide 4 Previous generations of materials primarily served a single function Protective/aesthetic coatings 4 Slide 5 Todays advanced materials are expected to be multifunctional 5 Structural 3D printed components with embedded sensors measure strain, force, pressure, or temperature within plastic parts Functional coatings offer value- added functionalities like hydrophobicity and anti-microbial beyond protection Slide 6 Promise (and hype) of multifunctional materials epitomized by wunderkind carbon nanomaterials 6 Carbon nanotubes (CNTs)Graphene Slide 7 MWNTs developmental past offers case study in challenges of advanced material commercialization Rocky history of MWNTs shows that a research and patent boom along with impressive technical performance is far from guarantee of commercial success Too many players simultaneously scaled manufacturing to meet uncertain demand, resulting in a dramatic oversupply 7 Slide 8 Did graphene developers learn from the MWNT lesson? Lux has long encouraged participants in the graphene space to view their MWNT predecessors as a lesson to be mindful of a case study with trials and tribulations on display to be learned from rather than repeated See our 2012 report Is Graphene the Next Silicon...Or Just the Next Carbon Nanotube?Is Graphene the Next Silicon...Or Just the Next Carbon Nanotube? Total graphene market will reach $349 million in 2025 8 Slide 9 GNP demand has yet to exceed 15% of the current supply This metric does not even include significant capacity expansions still in progress 9 Slide 10 Most GNP developers are long shots with unproven technical value and business execution 10 Lack of concrete performance metrics demonstrating true value proposition in most segments Overall, valuable lessons have been ignored and GNP developers are paying the price (see our 2015 report Case Closed: Graphene is the Next Carbon Nanotube)Case Closed: Graphene is the Next Carbon Nanotube Slide 11 While its too late to save graphene, lets turn our attention to the next wave of materials innovation: Smart materials change their properties in response to environmental stimuli and provide dynamic rather than static functionality Metamaterials derive unusual mechanical, electromagnetic, or acoustic properties from a carefully controlled microstructure or nanostructure 11 We need to do a better job of learning from the past to accelerate successful commercialization of next generation advanced materials Slide 12 Agenda Commercializing multifunctional materials: How did we do? Strategies for success in next generation material platforms Will you listen this time? 12 Slide 13 Platform technology materials push model has pitfalls Part of the allure of platform technologies is the myriad potential applications, but our data shows the challenges associated with such a materials-push model But relying solely on a market pull model also isnt the answer, as avoiding technology push altogether would miss out on really big opportunities With advances in materials becoming more functional and smart, the number of potential applications will only get bigger 13 *Data collected from Lux Research Member Site Advanced Materials 2015 Company profiles (n = 80)Lux Research Member Site Slide 14 Agenda Commercializing multifunctional materials: How did we do? Strategies for success in next generation material platforms 1) Partnership vs. application focus Will you listen this time? 14 Slide 15 Top emerging developers consistently stand out on strength of partnerships graphene 15 Slide 16 Top emerging developers consistently stand out on strength of partnerships hydrophobic coatings 16 Slide 17 Top emerging developers consistently stand out on strength of partnerships advanced ceramics 17 Slide 18 LiquiGlide edges SLIPs in liquid-infused coatings due to stronger application focus These technologies utilize a porous or textured surface to store liquid trapped liquid layer creates a low-friction surface that causes other liquids to flow off LiquiGlide has established downstream partnerships with packaging companies Elmers and Orkla, while SLIPS has formed an upstream partnership with BASF but is unproven in applications 18 Lux Take: Positive Lux Take: Wait and see Slide 19 Agenda Commercializing multifunctional materials: How did we do? Strategies for success in next generation material platforms 1) Partnership vs. application focus 2) Product push vs. material push Will you listen this time? 19 Slide 20 Graphene film developers aim to spur near-term revenue growth by pivoting from TCFs to sensors Most hype and attention on graphene application development initially focused on TCF segments like displays and touchscreens Commercialization progress has been slow due to high cost and deposition area limitation challenges Pivot among leading developers to sensors should reduce product integration complexities and increase revenue potential over pure play materials business model Graphene Frontiers and Bluestone Global Tech developing FETs for sensor applications Graphenea working on sensor applications with Nokia and Infineon 20 Slide 21 Graphene Frontiers Graphene films for sensor applications Technology and differentiators: Using chemical vapor deposition (CVD) process to grow graphene films at atmospheric pressure Can fabricate 4,000 field-effect transistors (FETs) with 10 m channel width on a six-inch wafer; intends to increase FET density moving forward Strategy and markets: Working on functionalizing both graphene surface and FET channels for biosensor and chemical sensor applications Major strategy shift over past year from graphene film material sales to sensor application development Lux take: Lab-scale production costs one of the lowest among graphene film developers; value proposition of sensor application remains unclear Decision to position itself as a sensor developer increases revenue and margin potential over pure-play materials business model, though technical and medical industry challenges will mean commercial revenues are far off 21 Summary information Founded in2010 LocationPhiladelphia, PA Employees5 Key partners and backers None on the record Lux Take: Wait and See Key metrics Capacity70-120 m2/yr Cost $30,000- $50,000/m2 Slide 22 Mechanical metamaterial start-ups position themselves as solution providers Rather than relying on (and pushing) the hype of metamaterials as a material class, these start-ups have achieved initial commercialization successes by developing products that provide solutions 22 Lux Take: Positive EmployeesRevenue 7$1.4M High-friction adhesivesAntimicrobial patterned filmsPatterned surfaces for friction reduction Lux Take: Wait and See EmployeesRevenue 10$2M Lux Take: Positive EmployeesRevenue 6$2.5M Slide 23 Agenda Commercializing multifunctional materials: How did we do? Strategies for success in next generation material platforms 1) Partnership vs. application focus 2) Product push vs. material push 3) Open innovation model Will you listen this time? 23 Slide 24 Todays leading 3D printer companies seek to monopolize materials Printer/cartridge business model hinders 3D printable materials development and slows growth of the entire space 24 3D Systems stock price Stratasys stock price Slide 25 Developed electron beam melting, a 3D printing process which builds up metal parts layer by layer by selectively melting a powder using an electron beam Open materials model facilitates adoption in production applications Business model has helped accelerate Arcams traction in production applications in medical and aerospace EmployeesRevenue (2014) 228$41.3M 25 Arcam Electron beam melting 3D printers Slide 26 Autodesk playing the long game with its open innovation approach to 3D printing Autodesks Spark initiative a 3D printing collaboration with partners such as Matterfab, Voxel8, Local Motors, and HP has the goal of improving 3D printers, materials, and services Autodesk has supplied the program with a $100M investment fund Invested $10M in start-up Carbon 3D In April 2015 Autodesk, which develops the Ember desktop 3D printer, released the formula to its photopolymer resin In return for this small investment of materials IP, Autodesk stands to reap significant dividends since accelerating adoption of 3D printers will increase the use of design software, Autodesks core offering 26 Slide 27 Agenda Commercializing multifunctional materials: How did we do? Strategies for success in next generation material platforms Will you listen this time? 27 Slide 28 BMS (now Covestro) is a leading material company and previously one of the most reputable sources for MWNTs However, MWNT market oversupply made large sources of demand hard to find BMS was forced to focus on long-shot projects like building the first solar-powered aircraft to circumnavigate the globe Prospects and timing for profitability of MWNT unit long unclearBayer shut down its CNT activities in May 2013 the potential areas of application that once seemed promising from a technical standpoint are currently either very fragmented or have few overlaps with the company's core products and their application spectrum. (BMS CEO) Don't listen at your own peril...you could be the next Bayer MaterialScience in MWNTs But if you learn to successfully apply these strategies, significant new materials revenue streams could be opened 28 Slide 29 3D printing can reinvigorate old materials 3D printing can enable new material combinations and create novel microstructures Conventional photopolymers artificial bone Porous metals Functionally graded materials 29 Slide 30 Combining metamaterials with advanced traditional material solutions will enable truly novel products Metamaterials see limited adoption Medium-term penetration of cheaper metamaterials Metamaterials compete with existing material solutions as prices fall Metamaterials supplement traditional material solutions and enable truly novel products Price/Value Performance 30 Slide 31 Dynamic functionality can enable a single material to replace a multimaterial part or system of parts Smart material classStimulusResponse 31 Slide 32 Conclusions Multifunctional materials have great promise, but technology commercialization pitfalls have been prevalent Next wave of materials advances in smart materials and metamaterials will further raise the level of innovation potential, but also intensify the challenges in bringing such materials to market Strategies for success in next generation material platforms 1) Partnership vs. application focus 2) Product push vs. material push 3) Open innovation model 32 Slide 33 Lux Research Asia-Pacific PTE, LTD www.luxresearchinc.com 75 Tanjong Pagar Road, #03-01 Singapore 088496 +65-6592-6978www.luxresearchinc.com Kanda Park Plaza, 5th Floor 2-2-2 Kaji-chou Chiyoda-Ku, Tokyo 101-0044, Japan +81-3-4520-5490 Thank you Ross Kozarsky Senior Analyst ross.kozarsky@luxresearchinc.com +1 857 284 5687