02.07.2007

Credit Suisse

Innovation has always been an important growth driver and its pace is accelerating. New applications in nanotechnology and renewable energy are for example set to trigger new growth opportunities across a wide range of industries. The market potential could reach multiple billion of dollars in the next years.

Innovation, which derives from the Latin’s to change, has always been an important driver of economic growth. The innovation momentum has picked up speed in recent years, as highlighted by the number of registered patents every year, up 35 percent since 2002.

The recent acceleration of US growth is good example on how technological innovation can spur a country’s economic growth. The US non-farm product growth rate was 2.8 percent between 2000 and 2006, compared with 2 percent during the ’90s and even beating the earlier record growth rate of 2.7 percent reached during the ’60s.

“Ongoing technological, demographic and geopolitical changes could accelerate the speed of innovation further,” Hervé Prettre, Credit Suisse’s head of Commodities and Equities Trading Research said. “Technology is evolving fast. Take mobile phones as example. Their product life cycle is shortening as consumers want the latest model after just a year,” he said.

Increasing globalization also forces the industrialized world to innovate at a faster pace, as emerging market countries like India and China export items with a higher added value than previously. The fact that the US defense budget has soared since 2002 also supports innovation, as it historically has been a major innovation driver, Prettre added.

“The military application of a new generation of planes, the Tiltrotor, already produced as prototype, is set to have commercial application in the next decade,” he said.

Nanotech Boom Ahead

Investors can benefit from this innovation boom by focusing on companies which not only centre on pure product innovations but also work on improving their processes and organization. Credit Suisse’s analysts single out nanotechnology as one of the sectors with most innovation potential across a wide range of areas including healthcare, power generation, consumer electronics and new materials.

The market for nano products – objects being a mere billionth of a meter - is forecast to reach trillions of dollars within the next 10 to 15 years, according to industry experts. Progress when it comes to improving nanotech-driven solar cells and batteries can be highlighted.

“The solar cell market’s compound annual growth rate has been 35 percent in recent year and growth expectations are adjusted upwards almost weekly. Rising raw material costs and demand for more energy efficient devices are triggering innovative nanotech-based solutions,” said Uwe Neumann, a Credit Suisse research analyst.

When it comes to batteries, the global market is estimated at 50 billion US dollars out of which 6 billion are rechargeable batteries. But the life cycles of rechargeable batteries are still too short and the long recharge times do not meet the needs of the consumers. “With the help of nanotechnology, the commercialization of new batteries for electric cars, chargeable in 10 minutes with a range of 190 of miles (305 kilometres) is on its way,” Neumann added.

Innovation in Health, Food Emerging

Nanotechnology is obviously not the only sector where innovation is fuelling growth. The healthcare, food and beverage, and robotics industries are some of the numerous sectors growing thanks to new innovative products.

Pharmaceutical companies have for example been building up a promising pipeline of new drugs aimed at treating Alzheimer’s disease, as the number of people likely to be affected by the disease will quadruple by 2050, a consequence of the ageing global population.

Food and beverage companies develop new health and wellness products with ingredients containing scientifically proven health benefits. Robotics is yet another sector where innovation is surging. “The development of robotics is much the same as computers 30 years ago,” Microsoft’s founder, Bill Gates, was quoted as saying.

The deployment of artificial intelligence is notably being used for cleaning robots, but also to develop robots entertaining children with conversations and quizzes. The list of other sectors benefiting from innovation can easily be extended. For more information and investment ideas, please read "Global Investor Focus" (Issue 02, June 2007) which focuses on innovation.