Numbers may not gauge it, but MEMS industry is moving at midyear

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Oct. 10, 2003 – The past year has certainly been fairly challenging for those in the MEMS industry. Year-over-year revenues increased from $3.8 billion in 2001 to $3.9 billion in 2002 — even though unit shipments increased 47.6 percent.

However, that disparity in growth rates shouldn’t be cause for concern. Economies of scale have come into play as more companies are moving from ramp-up to volume production. With a large boost in unit shipments, prices drop accordingly. The best example is the increased movement of gyros into the automotive market and the corresponding reduction in price.

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The boost in unit shipment growth also parallels a number of milestones reached starting in the latter part of 2002 and going through midyear 2003. Analog Devices and Robert Bosch announced that they had shipped their 100 millionth accelerometer and 200 millionth sensor, respectively, at about the same time. Agilent Technologies has already shipped its 10 millionth duplexer — an achievement that was reached in a very short period, and Texas Instruments recently announced that it had surpassed the 2 million mark for its micromirror-based Digital Light Processing (DLP) subsystems.

Perhaps the most exciting parameter of success has been the extraordinarily high number of acquisitions that have taken place within the past year; at last count, they numbered a dozen. Certainly the valuations are nowhere near those seen in 2000 and 2001, but obviously those doing the acquiring believe they are on to something that will give them an additional competitive advantage. In addition, one company, FormFactor, successfully went public in June — no small feat in weak economic conditions.

One of the biggest concerns right now is lack of venture capital. The lingering afterburn from overinvestment in the telecom sector and hype surrounding the prospects of nanotechnology have caused many VCs to shy away from MEMS startups. In fact, VC funding for the first six months of 2003 was just $52.2 million, on track toward its lowest level in five years. The good news is that there still is money to be had, although it’s a little bit tougher to get. On a brighter note is the fact that interest does appear to be growing again, with more VCs inquiring about the opportunities that MEMS offer.

The soft economy and equity drought may at least partially explain why nearly two dozen companies have gone out of business. This includes at least four fabs, with a fifth currently in bankruptcy. To add to the pressure within the fab sector, In-Stat/MDR has found, only 11 percent of companies supplying MEMS devices currently are using outside foundries. A fairly large number of startups still are not yet in the fabrication stage, so it’s not known whether they intend to fabricate in-house or outsource. Even so, that means there is a relatively small number of customers available for a relatively large number of fabs to capture. So, further consolidation is highly likely.

One emerging trend to keep an eye on is an impending regional shift that may grow more significant in the next five years. Exactly how and when this will occur, and what the full impact will be, is still a bit cloudy. At this point, the stage is merely being set as a number of countries work to put in place the infrastructure necessary to become major MEMS centers. In fact, future regional competitiveness may very well be a direct result of the significant levels of spending that are taking place right now in China, India, Mexico, Taiwan and other countries.

So, what’s in store over the next few years? In terms of unit shipments, RF (or wireless) MEMS is on a roll. Resonator-based devices in particular are being embraced very strongly. In addition, Alien Technology’s radio frequency identification tag, the only RFID tag to be micromachined (and then self-assembled via its fluidics process), has certainly caused ripples in the market — resulting in at least one big customer commitment. As a result, the industrial sector is expected to see the biggest gains in market share on a unit shipment basis.

From a revenue standpoint, optical MEMS will lead the way as opportunities outside telecom continue to expand. Obviously their higher price point plays a very strong role here, as does the fact that they are expected to move into higher volume applications fairly shortly, most notably in the automotive and consumer markets.

However, the communications market will be the biggest winner in terms of revenue-based market share gains, primarily driven by the strong growth in RF MEMS, despite their low price point.

Overall, sales of MEMS are expected to remain robust, with
revenues forecast to increase at a compound annual growth rate of 15.9 percent. Although this is down from previous forecasts, it’s offset by the fact that unit shipments (at an increasingly lower average selling price) are forecast to grow at a compound annual growth rate of 26.1 percent.


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