Analyzing the analysts when they don’t agree

05/01/2006

By David Forman

When market analysts are right, they are revered. When they’re wrong, they’re reviled. Prognostication is a tough business, especially for a sector like MEMS where market data from many businesses must be analyzed.

One would think that - as with the case of MEMS microphones - focusing on a single market or MEMS product would make the job easier. But market analyst reports and statements about the sector show it’s not easy. They also show that analysts communicate in different ways.

Analysts have been enthusiastic about market growth and fairly accurate in their predictions. But they also have disagreed about what’s driving the market, contradicted themselves and failed to disclose the potential for conflicts. What gives? Here’s a crash course in learning how to read market analysts ... between the lines.

Accurate enthusiasm

Analysts have often been blamed for overly ambitious predictions. But that’s not always the case. In fact, sometimes they are spot on.

Kudos to The Information Network for predicting MEMS microphone market growth with pretty good accuracy. In June 2005 the company said that 5 percent of nearly 2 billion microphones would be MEMS-based, or about 100 million, which turned out to be correct.

Yole Developpement, a French market research firm, echoed the 100 million unit mark for 2005. It predicts 800 million MEMS microphones will be sold in 2010.

In the nearer term we’ll get to see whether The Information Network is on a roll in terms of accuracy. A prognosis that dates back to 2003 forecasted 320 million units in 2006.

Shifting sands

Analysts also sometimes fail to acknowledge the bigger picture. For example, The Information Network arguably oversimplified the market in a February 2006 press release when it said that Knowles Acoustics had more than 95 percent of the market for MEMS microphones - and that it did not see any companies that would be able to make a dent in the market over the next three years.

Few dispute that 95 percent figure. However, in addition to Knowles, companies such as SonionMEMS, Akustica, and MemsTech also sell or are sampling silicon MEMS microphone devices. Knowles has successfully captured the lion’s share of the price-driven cellular telephone market, but it would be premature to disregard the competition.

In fact, says Marlene Bourne, president and principal analyst at Bourne Research LLC and a longtime observer of the MEMS sector, companies using existing high-volume suppliers “need that second source.” What’s more, it is natural for an initial leader’s percent of market share to erode as the market itself expands and customers set up agreements with backup suppliers. It can be difficult for a market to expand at all, she says, unless those alternate suppliers emerge.

Competing “frames”

Analysts sometimes appear to outright contradict one another. In February, Akustica announced it was sampling the first single-chip MEMS microphones on the market. In its press release, Akustica quoted J.C. Eloy, general manager of Yole Developpement: “The winning companies are delivering devices with embedded functionality. Featuring small size and easier integration, these devices also leverage the benefits of the semiconductor infrastructure in terms of manufacturing and cost structure. Companies such as Akustica are using this model to pave the way to high-volume applications.” The suggestion is that tight integration like that evidenced by Akustica’s single-chip MEMS microphone is the path to success.

The next day, Robert Castellano, the president of The Information Network, was quoted in the electronics industry press. His prepared statement ran as follows: “Knowles’ early and significant success in marketing this product has created a lock on the market, minimizing the chance of market share gains by existing silicon microphone vendors and a growing number of Chinese manufacturers.” That is, it’s not about tight integration but about price, marketing and existing market share.

Playing favorites? Not necessarily, says Bourne. Rather, she says, the statements merely reflect different views about what’s driving the market - merely price or also component integration.

Client privileges?

Analysts are often cited in press releases by companies announcing news. But Bourne says it’s not exactly the pay-to-play situation it appears to be. “An analyst will often provide a quote because they have a good relationship with a company,” said Bourne. “In general the companies are clients of all the market research firms. They buy research from everybody.”

In fact, says Bourne, often the quotes are initially provided by the companies and the analysts sign off on them or tweak them. But that doesn’t mean the analysts will blatantly support only their own clients. On the contrary, she says being a client usually doesn’t make much of a difference because the quotes are usually generic. They explain the market and disclose how the company’s technology or product might fit in without endorsing one company or other.