Whenever the hype surrounding a new technology reaches a certain pitch, someone dusts off the historical nugget that most of the loot from the California gold rush went to those who made and sold the tools. It's happening again as nanomania builds, with makers of electron microscopes finding their wares in increasing demand.

Never mind that some of the "toolmakers" of the Internet boom of recent years, notably the fiber optics companies, are still recovering from the subsequent bust. There's reason to think that companies such as

FEI

(FEIC)

are already among the earliest beneficiaries in the race to harvest products from the fledgling field of nanoscience.

Last year, $8.6 billion was invested in nanotechnology research and development, according to Lux Research, a flow that's growing by about 10% a year. Unlike dot-coms, however, nanotech firms are seeing only a sliver coming from venture capital firms, which

remain cautious about the technology. Some $4.6 billion came from government sources, such as the National Science Foundation, and $3.8 came from companies that see nanotechnology expanding their current businesses -- from

DuPont's

(DD) - Get Report

fabrics to

General Electric's

(GE) - Get Report

myriad initiatives.

Hillsboro, Ore.-based FEI competes with giants such as

Hitachi

(HIT)

and smaller rivals such as

Veeco Instruments

(VECO) - Get Report

(which tried unsuccessfully to buy FEI in 2003) in producing equipment for analyzing and manipulating matter at the atomic scale. Thanks in part to a powerful new microscope, FEI's stock has fared better than Veeco. So far this year, FEI is down 1%, while Veeco is down 29% amid a perceived slowdown in orders from chipmakers.

FEI may be a small company, but it thinks big: Earlier this month, it unleashed a scanning/transmission electron microscope called the Titan 80-300, the first microscope that can create an image of a particle one angstrom large. (An angstrom is a tenth of a nanometer, or about one-250,000,000th of an inch.) With that resolution, Titan can produce images of carbon atoms.

"The new Titan system should help drive improving overall margins in the second half of the year," says David Duley, an analyst with Merriman Curhan Ford, which has no underwriting relationship with FEI. Duley, who has a buy rating on FEI's stock, says Wall Street will wait to see the actual improvements in the third quarter before the stock rallies again.

FEI says the Titan, which is marketed to national research centers as well as universities and companies that can afford its price tag of more than $2 million each, has already received several advance orders ahead of its official launch this August. Although FEI didn't say who specifically was placing the early orders, it said they came from materials researchers in the U.S. and Japan, biotech research in Scandanavia and Germany, and nanotech institutes in Korea and the U.S.

Given the learning curve of using the new device, FEI doesn't expect the Titan to contribute to earnings until later this year and into 2006. When it does, it may boost FEI's profit margins, as the Titan sells at higher margins than many of the company's other equipment, because there's no comparable device close to hitting the market. FEI booked $10 million worth of Titan orders in the first quarter.

As with many companies toiling on the nanoscale, FEI has a good portion of its revenue coming from other areas. About 45% of $466 million in 2004 revenue came from microelectronics, with a third coming from electron optics and the rest in customer service and components.

And while sales to research institutes and biotech and materials companies accounted for 46% of its sales last year, 47% came from semiconductor companies and 7% from storage companies, both of which are notoriously cyclical.

In its first quarter, FEI's sales to the semiconductor market were up 42% from the year-ago quarter, but they were 12% below the sales from the previous quarter. And bookings from semiconductor companies were down 21% from the fourth quarter of 2004. FEI's first-quarter results came in below analyst expectations, and the company warned of further weakness in the second quarter.

With more sales expected to come from outside the semiconductor industry, FEI is bulking up its management structure. Last Thursday, FEI named Ray Link of TriQuint Semiconductor its new CEO and Peter Frasso of Brooks Automation as chief operating officer. Ex-CFO Bob Gregg will oversee FEI's sales operations, and ex-COO Stephen Berger will focus on developing new technologies.

Gregg said the moves are aimed at giving FEI, which until now has concentrated its energies on developing its technology, a stronger ability to boost margins by trimming costs and emphasizing sales in strategic markets. "We can sell a lot of new products in new areas we've never sold in before," says Gregg.

Even though FEI is among the earliest beneficiaries in spending on nanotech R&D, it faces the usual caveats that investors often hear about emerging technologies: The promise of dazzling new products requires patience that will need to last at least a few more quarters, during which investors may need to face some choppy waters.

That said, FEI's push on innovative products and technologies may keep its promise bright. Needham analyst Robert Maire, who rates FEI a buy and whose firm has an investment-banking relationship with the company, cites an FEI technology allowing "nano-biopsies." Using ion beams, researchers can carve out a small piece of material and examine it more closely.

Such tools are now used mostly by white-coated researchers in "bleeding-edge" research labs, Maire says, but they will become more mainstream in time. "This bleeding edge is quickly becoming, and in many cases has become, mundane production-line stuff," he says. "This transition to production-line use would certainly increase the volume of FEI products sold."