There are inductors, resistors and capacitors. These are the three passive circuits that all electronics have been built upon since the advent of electronic devices. Everything from a radio to a parallel processing supercomputer to the space shuttle uses the same junk.

Until now.

In April, scientists at Hewlett Packard (HP) discovered the Holy Grail of electronics—the memristor. Granted, the name doesn’t roll off the tongue, but it’s one of the most revolutionary breakthroughs of electrical engineering in at least modern times. And it was only achieved because of nanotechnology. The “wires” in the substrate are so small that the characteristics of the titanium oxide reacting to the small oxygen vacancies between the wires give the memristor life, not alterations to the structure of the titanium oxide material.

What’s the big deal? Size, speed and heat. The memristor process doesn’t generate the kind of heat associated with contemporary semiconductors, and it’s incredibly dense. Generally, when you scale down transistors, they run hotter and hotter. That’s almost the opposite case for memristors.

In April, HP tested the material in its ultra-high-density crossbar switches, which use nanowires to pack a record 100 gigabits onto a single die, compared with 16 gigabits for the highest-density flash drives that exist today. That’s almost an order of magnitude--more memory in the same space.

HP predicts that, since playing around with these things, it will likely begin producing memristor memories by next year. On the consumer side, HP won’t be talking about nanotech computer memory when it goes to sell these memristor-loaded machines. It will be about size, speed and price.

My point is Nanotech is shattering technological barriers, but it rarely makes the headlines, except in the scientific community. And this is why, as an investor, you need to look behind the scenes to see how committed to innovation large companies are, because small companies can’t commit the resources to search for memristors, turn them into products or place them in machines on a reasonable economy of scale. But HP can.

This is one of the things Clayton Christensen talks about in The Innovators Dilemma. Part of the book is a case study on innovation in the hard-drive-disk market sector. And what he finds is that big companies are just as innovative as small companies or even more so. But because of their structures, they tend to miss the breakthrough products or the new technological trend.

IBM’s Millipede project is a classic nanotech example. Big Blue developed an absolutely amazing nanotech magnetic storage technology (25 DVDs stored on a postage stamp kind of thing). But after years and years of R&D, it came to the conclusion that this type of product wouldn’t be worth producing because the major electronics market is designed for solid state components, not magnetic ones.

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But you could say that this is the exception to the rule for most successful big companies. They may leave a few men stranded with the bases loaded and no outs along the way, but they score consistently and sometimes, like HP, hit one way out of the park.

Speaking of park, that reminds me of another example of where an innovator felled a behemoth simply because management didn’t see the value of its R&D.

Apple is a company founded on many concepts--the mouse, graphical user interfaces, e-mail--Steve Jobs lifted from Xerox’s Palo Alto Research Center (PARC). Look where Xerox and Apple are now. That’s because Apple has continued to innovate, while Xerox can’t get out of its own way.

HP looks to be on the right side of this, after almost a decade of trying to rediscover its innovative roots. Good for it; keep up the good work.

Speaking Engagements

“The coldest winter I ever spent was a summer in San Francisco,” a saying that’s almost a San Francisco cliche, turns out to be an invention of unknown origin, the coolest thing Mark Twain never said.

The natural setting is, however, among the most exciting in the US. Venture west to San Francisco Aug. 7-10, 2008, for the San Francisco Money Show, and conduct your own field study.

My colleagues Neil George, Roger Conrad, Elliott Gue and I will discuss infrastructure, partnerships, utilities, resources and energy, and tell you what to buy and what to sell in 2008.

Click here or call 800-970-4355 and refer to priority code 011470 to attend as our guest.

I also have a special invitation for readers to join me and my colleagues Elliott Gue, Roger Conrad and Neil George aboard an exciting 11-day investment cruise Dec. 1-12 through the Caribbean and Panama Canal.

This will be a unique opportunity to step away from your daily routines, relax in one of the most beautiful parts of the world and share analysts’ knowledge and passion for the markets. During the sail, you’ll not only explore the cerulean splendor of the Caribbean, but you’ll also delve deep into current markets in search of the most profitable opportunities for your portfolios. You’ll also have the rare chance to sail through one of the world’s engineering marvels, the Panama Canal.

It’s always a special treat to meet and talk with subscribers in person, and we couldn’t have picked a better setting than aboard the six-star Crystal Serenity. This is sure to be an especially memorable experience. We hope you’ll join us.

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