Palm Beach, FL 6/8/12 (StreetBeat) -- Garbage. Most people take it for granted that when they take the bins to the curb every week that their used or unwanted items magically disappear without thoughts about where the waste is going or how it is impacting the earth. The fact is that garbage in general is literally piling up and e-waste, discarded electrical or electronic devices (sometimes called “e-scrap”), is a rapidly emerging problem across the planet.
Today’s electronic world moves lightning-fast with industry providing a steady stream of “the latest and greatest” which makes models that are only a couple years old seem antiquated or obsolete to the hundreds of millions of consumers that have to have the newest of products. The first rule of electronics is “newer is better.” Just a sampling of evidence: In October 2011, Apple (NASDAQ: AAPL) said that it sold more than four million iPhone 4S smartphones in its first three days – the most ever for any phone and more than twice the number of the iPhone 4 phones that were sold in its first three days on the market (1.7 million only 16 months earlier in June 2010).
The old phones add to the millions of cubic feet that are amassed each year in e-waste to either hit a landfill, incinerator or, in some cases, get recycled. The passage of the Electronic Waste Recycling Act of 2003 sets forth policy for disposal of e-waste and most states have additional legislation regulating proper disposal as the majority of tech products have dangerous pollutants, such as lead, cadmium, beryllium, or brominated flame retardants, enveloped in their hardware, so simply burning or burying are not viable – or legal - options. When buried or burned, the toxic chemicals in electronics can leach into the land or be released into the atmosphere with a potentially devastating impact on communities and the environment. It is pertinent to note, however, that a clear definition of e-waste remains a topic of debate as to which products exactly fall into the category and that in many cases, improper disposal is still a commonality.
According to a 2009 article at cbsnews.com, Americans throw away about 130,000 computers every day and more than 100 million cell phones each year.
Boulder, Colorado-based clean technology research firm Pike Research estimates that the 676 million cubic feet and 6 million tons of e-waste generated in 2010 is going to escalate to 1,465 million cubic feet and 14.9 million tons by 2025. The industry expert warns that there is a difference between “e-scrap” (the total of “end-of-life” units) and “e-waste” (the portion of e-scrap that is discarded irresponsibly). Pike estimates that e-waste levels will rise from 4 million tons in 2010 to 6.1 million tons by 2025.
In the investment community, the question “Which industry offers a substantial opportunity for growth?” is often heard. Management of end-of-life electronics provides a solid answer as a burgeoning industry that is still highly fragmented with no clear leader in the space. As Robert Landmesser, chairman of New Jersey-based AERC Recycling Solutions, noted in a recent interview with the Environmental Business Journal “[the] size of the U.S. e-waste management market has been estimated, roughly, at anywhere from $4 billion to $6 billion annually…‘No one has a material position. There’s no one at $300 million, or $200 million, or even $100 million in sales, So (sic) there’s still no dominant market leader that we’ve seen, and we’re in the top ten based on volume.’”
Jerry Powell, executive editor of Resource Recycling magazine, added, “[the] end game has not been found—who will win, who will lose, who grows and who doesn’t, and what their business model will be.”
Arrow Electronics (NYSE: ARW), a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions with 2011 sales of $21.4 billion, has entered the space through a series of acquisitions, including snagging Asset Recovery Corporation in February 2012 and TechTurn, Ltd in January 2012. According to their website, TechTurn, an ISO 9001-, ISO 14001- and OHSAS 18001-certified company, follows a strict zero landfill policy. Already being in the electronics industry and seeing the great need for solutions to electronics disposal, the $34 per share company is aggressively trying to grow its footprint in the e-waste business.
Global metal recycler Sims Metal Management Ltd. (NYSE: SMS) has taken a proactive approach to e-waste disposal by partnering with Goodwill Industries to offer electronic waste collection and recycling services across Goodwill’s Southeastern Wisconsin and Metropolitan Chicago’s 49 stores. Sims Recycling Solutions is now actively collecting and processing televisions and other assorted peripherals dropped-off at the locations. Last month, Sims reported that it collected nearly 473,000 pounds of electronics from more than 1,300 people at 25 events in honor of Earth Day during the month of April. Trading around $10 per share, Sims has a market cap of $1.98 billion and generated $9.4 billion in revenue in 2011.
A junior that is expanding its presence in the e-waste management arena is the aptly-named E-Waste Systems Inc. (OTCBB: EWSI). In mid-2011, the Ohio-based company transitioned from a shell to an operating outfit that during its first few months generated $125K in sales at 56% gross margin from its acquisition of Tech Disposal, Inc., while the full year showed $575K in sales and was profitable on an operating basis.
In 2012, E-Waste has partnered with Santa Clara, California’s Zak Enterprises of Santa Clara, CA, a company that is among the longest serving businesses in the end of life electronics industry. Product has already begun flowing from Zak customers in Europe through EWSI's network with more expected to follow, according to a EWSI corporate statement. Expanding its business to the east, E-Waste joined forces with CR Electronics, another established e-waste operator, to grow its geographic and technical coverage for the New York/New England area in February 2012.
Additionally, E-Waste has recently expanded its free e-waste recycling services in the greater Columbus, Ohio area and partnered with Tech Columbus as their preferred e-waste recycler. In just a few hours at an event during Earth Week, the company collected nearly 5,000 pounds of e-waste. Bolstering its collection efforts, E-Waste has agreed to make monthly weekend collection events an integral part of its services and to complement that with free drop-off at its e-waste plant every weekday.
The bottom line is that innovations in technology are going to continually ramp upward with non-linear growth patterns and with that comes a great deal of electronic waste in dire need of proper disposal and recycling. In the public domain, there are a very limited number of companies for which investors can capitalize on the mushrooming industry, with Arrow, Sims and E-Waste aggressively making strategic acquisitions and moves that could put them at the forefront as companies jockey for leadership positions and maximum market capture in the valuable e-waste industry. The upside for a smaller outfit such as E-Waste could be substantial given that it comes at a price tag of only 35 cents per share and does not carry the large overhead that can limit gains in their larger peers. The upside for the environment is that these companies are cleaning-up the garbage business and helping to protect the Earth. Talk about a win-win.
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