Scientists in Iowa have developed a magic metal that can turn walls into speakers and remove the smell from manure. If only they can keep those Chinese spies from stealing their formula ...
(FORTUNE Small Business) – Five of Etrema's top executives are sitting in a conference room listening to jock rock. The space is drab even by conference-room standards, furnished with an oversized green marble table on which sit two fist-sized chrome discs plugged into a portable CD player. But the music sounds as if it is coming from everywhere. The quality is so good that when I close my eyes, I could swear that Queen's Freddie Mercury is standing in the room in front of me, promising, "We will, we will rock you!" Michael Conley, the company's president, pats the green marble--and tells me that's where the music is coming from. Last August, Etrema--an innovative technology firm nestled in the cornfields of Ames, Iowa--started selling those chrome discs for $1,500 a pair. Called Whispering Windows, they can turn any wall, window, or drab conference table into a speaker. When Conley lifts the discs from the table, Freddie falls silent. Then Conley tells me to stick my fingers in my ears. "Relax," he says as he places the cold disc on my forehead. "We're just turning your head into a speaker." A few seconds later, even though my ears are plugged, power chords blast through my skull. It feels like the loud crunch that fills my head when I bite into a tortilla chip, except the crunch is music. The stereo sound is inescapable. I can't say it's a pleasant experience--afterward I will down a bottle of Tylenol--but it's not every day that your head serves as a piece of stereo equipment. Whispering Windows is Etrema's first commercial product and can be ordered directly from the company by phone. A local businessman recently placed ten of the discs inside the drywall of his new house in Des Moines, creating a surround-sound music system. And Peter Jones, the high-end department store in London, turned the windows of its storefront into an audio advertisement--as shoppers pass, they encounter a mysterious, uniform blanket of sound that seems to emanate from the windows themselves. Spokesmen for the store say that the speakers draw 49% more people to the store's displays. (Etrema is now trying to secure a major retailer to sell a $300 portable version called the Presenter, aimed at business travelers, that can plug into laptops and give any room a top-quality sound system for presentations. A toy version, the Soundbug, is available for $20 from Amazon and OfficeDepot.com. Despite the poorer sound quality, teenage boys seem to like it.) Whispering Windows is just the first of dozens of products that Etrema is hoping to launch in the near future, including a wireless version and an advanced sonar system for the U.S. Navy. The common ingredient in all of Etrema's offerings is something called Terfenol-D, a metal that changes its shape--as quickly as 20,000 times a second--when exposed to a magnetic field. A tiny amount of the metal--about a splinter's worth--causes invisible vibrations that are rapid and powerful enough to move the surface of an entire tabletop, allowing it to transmit sound (see box). Terfenol is currently thought to be the "smartest"--i.e., the most reactive to its environment--metal in the world. And for the time being at least, the 40 employees of Etrema are the only people in the country who know how to affordably manufacture it. Terfenol's potential uses are vast. Etrema's scientists are figuring out how to use it to recycle car tires, help the hearing-impaired, and take the smell out of hog waste (by separating out the ammonia). With so many products to develop, CEO Bill Flowers says, it can be difficult to concentrate on the most promising ones. "We've really struggled with it," he says. But that's not the biggest problem. For while Etrema currently holds a monopoly on the world's smartest metal, its executives predict that within about seven years competitors will have figured out a way to make Terfenol more cheaply--or worse, to manufacture an even smarter metal. (Etrema's scientists are already hard at work developing Terfenol's successor.) "It is a unique problem," says Jon Snodgrass, the company's chief scientist. And it's one that gives Etrema's scientists an extra incentive to develop new applications for Terfenol as quickly as possible. All employees go on what they call "missionary calls" in the hope of persuading companies to hire Etrema--which brought in $10 million in revenues last year--to develop some Terfenol-based application. So far, Etrema has used Terfenol in high-pressure pumps for oil refineries, brake systems for the auto industry, and manufacturing equipment for the agricultural-machinery businesses. (Another of Terfenol's advantages is that it doesn't seem to deteriorate with time or use, making it ideal for such applications.) "We are a solution looking for problems," says Snodgrass. Terfenol, a combination of terbium and dysprosium, two rare earth metals, was developed by U.S. Navy engineers at the Naval Ordnance Laboratory in Washington, D.C., in the 1970s. The Navy expected that Terfenol's powerful vibrations would be useful in sonar but could not produce the metal affordably. Ames Laboratory, a U.S. Department of Energy lab on the Iowa State University campus, was renowned as the home of the country's preeminent earth-metals experts after its scientists helped purify uranium for the Manhattan Project in the 1940s. So when the Navy sought partners to unleash Terfenol's potential, it came to Iowa. "When I realized Terfenol was born, it was a major breakthrough, but there was more to do. I immediately went to Ames," says Arthur Clark, the Navy scientist who discovered Terfenol. In 1987, Etrema was spun off from Ames Laboratory, with the charge of discovering a cheap way of producing Terfenol--and of creating technology jobs in Iowa. Aside from the high-profile Ames Lab, there were few options for those with technology degrees, forcing many to leave the agricultural state. Today Etrema is home to several Iowan scientists. After a career doing R&D work for the CIA, Conley came back to his native Iowa because of Etrema. If it weren't for Etrema, Snodgrass says, he never would have been able to use his degree in metallurgy from Iowa State in his home state. Although Etrema sold Terfenol to individual developers, it wasn't until 2000 that the metal became affordable for the broad market. The world, however, didn't take much notice. By the end of 2000 only a few dozen organizations--corporate R&D departments, university labs, and "crazy inventors," as Flowers puts it--had purchased samples of Terfenol. And most of them didn't know what to do with the metal. "When we called up our first customers a year later, 90% still had the Terfenol sitting in their desk drawer," says Flowers. Still, progress had been made. Although Etrema was concentrating on selling Terfenol to outside developers, some interested customers hired the company to do the developing itself. One wealthy businessman handed Etrema $1.5 million to stop the slight vibrations on his yacht when he hit top speeds. Terfenol did the trick, allowing him to dine at sea without having his meal shimmy off the plate. A local church hired the firm to build a special pew so that a deaf person could hear the service. And even some of those crazy inventors bore fruit. Barry Mersky, a dentist in Maryland, bought Terfenol in 1995 in hope of creating a "tooth phone," a small device placed on a tooth that allows people to communicate in high-noise environments. Mersky's six-person company, ESComms, based in Bethesda, Md., now receives funding from the Army and Navy, whose interest was piqued after the Sept. 11 terrorist attacks showed that firefighters had trouble hearing radio communications inside the World Trade Center. The dentist is hoping to have a working prototype for the military to start using by next year. Still, in 2001, hoping to raise Etrema's profile, Flowers decided to get more disciplined with contract work--focusing on bigger companies and doing all the development in-house. "We are looking for companies like GM instead of the guy in his garage with a great idea," says Flowers. Remington is now working with Etrema to develop a dry shaver with Terfenol. The auto industry--Etrema won't share any company names--is looking at developing Etrema-made fuel injectors. From the parking lot, Etrema's headquarters look like any generic office park, albeit one in the quiet of Iowa. The small one- and two-story buildings are engulfed by wide-open space that extends for miles. The lab's interior, however, seems more like the set of a James Bond film. Etrema employs only 40 people--all of whom presumably recognize one another--but the scientists are required to wear identification badges at all times. Infrared key passes are needed to open any door. Every time I walk into a room, it seems, a manager places his hands over a computer screen. What is Etrema working on now? No comment. How is Terfenol made? No comment. How long does the process take? How much Terfenol does Etrema make a day? No comment. No comment. Yet in August the U.S. military--which must approve any Terfenol products sold abroad--divulged that Etrema's fortress had been infiltrated. Two years ago the firm's computer system was hacked into, most likely by spies for the People's Republic of China, which, according to the Pentagon, is actively trying to steal the formula for Terfenol. Terbium and dysprosium are most commonly found in the Boutou region of northern China. Right now the U.S. government pays China for those materials. But if scientists from China discover how to manufacture Terfenol--Etrema's Snodgrass says that three Chinese companies have already started making pirated versions--the metal's still-fragile reputation could be harmed by the cheaper, imported version. Etrema is seeking legal action to enforce patents, but it is difficult to pursue intellectual-property issues in the communist country. Another option would be to use the courts to go after customers here in the U.S. that might soon try to buy Terfenol and its products from the Chinese. "The lifeblood of Etrema is Terfenol," says Conley. "So whether we like it or not, we will have to protect that." Best-case scenario? Etrema enters a partnership with one of the Chinese companies and uses it as a supplier. Worst case? "We make a lot of lawyers rich but won't be able to do a damn thing about the problem because it is in China," says Snodgrass. The Department of Energy is also investigating the hacking incident to see whether national security was compromised. Back in the conference room, Flowers tells me that despite the challenges, Etrema's scientists need to have just one of their products catch on. Then, he says, they'll all get rich. "We're a small company in Iowa," he says, while Queen's fighting-to-the-end anthem "We Are the Champions" rocks in the background. "But we don't plan to stay that way." |
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