The latter part of 2004 is shaping up to be very good for microelectromechanical systems (MEMS) suppliers. Despite lingering uncertainty on the foundry side regarding consolidation, venture capitalists are investing again, potential customers continue to raise their level of interest and several applications that MEMS suppliers have long been pursuing are now finally coming to fruition. With improved market conditions, the telecommunications market is looking better than ever before, and offers two key end uses to watch during the next few quarters: optical networking and cell phones.

Optical networking certainly doesn't conjure the same level of excitement that it did several years ago, but the fact remains that there is indeed opportunity in this market niche. While there are far fewer MEMS startups pursuing these opportunities than there were several years ago, and the solutions being offered are much different from what first emerged, there are still approximately two dozen companies focused on this space. What is most encouraging is that nearly two-thirds are now generating revenues, with much of the sales activity beginning in earnest in the last quarter of 2003.

That's in line with indications of increased customer interest in early 2003. The recent upswing in revenues has been supported by more customer announcements in early 2004, suggesting that MEMS suppliers in this sector are finally on track for success. To what extent depends on expectations, which should be somewhat tempered, as the giddy days of 2000 and 2001 aren't likely to re-emerge anytime soon. There is no question, however, that a number of companies will indeed find success here.

As an end-use application, supplier as well as customer interest in MEMS and cell phones has been percolating for quite some time. While some MEMS devices for cell phones are the result of offering a solution to a real need (in the form of smaller, improved solutions over existing technologies), other MEMS devices have had to create the demand by pushing use of the technology in some areas. This can be not only incredibly difficult, but also typically does not succeed. The good news is, for some MEMS devices, it appears that the technology push has been successful.

The best example of market pull to date is Agilent Technologies Inc.'s FBAR duplexer and filter. The duplexers alone can be found in nearly five dozen mobile-phone platforms, and have already captured more than 70 percent of the code-division multiple-access phone segment. In late January, the company introduced second-generation duplexers and full-band transmit filters, both of which are 66 percent smaller than their first-generation counterparts.

The MEMS device most likely to follow in Agilent's (Palo Alto, Calif.) footsteps is the microphone. Here, integration resulted from more of a technology push than market pull: The electret condenser microphone, the entrenched technology, is small, inexpensive and sufficiently useful. Nevertheless, the demonstrated improvements of MEMS microphones, at the same cost, should no doubt create an eventual strong market pull. The first MEMS microphone to be integrated into a cell phone, from Knowles Acoustics, a division of Knowles Electronics LLC, was slated to hit the market in May 2003, in the N1 phone from Neonode. The much-anticipated smart phone has suffered from continuous delays, however, and the company has pushed the launch back to later this year.

Even so, both Knowles and Akustica Inc. (Pittsburgh) are well-situated to fulfill the expected demand from the value proposition that MEMS microphones offer. As a result, increased momentum in the cell phone market is likely to begin this fall.

The use of accelerometers in cell phones to scroll through screens is clearly all technology push. One doesn't need to tilt the phone to scroll through screens, as opposed to pushing buttons, which have always worked perfectly well. Long discussed by many suppliers of MEMS accelerometers, no traction was achieved until recently. The company that has opened the door is MyOrigo (Finland), whose MyDevice smart phone will be launched in Europe this summer. It is the first cell phone to use MEMS accelerometers for this purpose, and by many accounts, will by no means be the last.

While the above examples are but small steps, they illustrate that progress is finally being made in communications, a market that has suffered from both overhype and overexpectation. Yet the potential opportunity cannot be ignored, and it's good to see that that's finally being captured.

In the meantime, other major segments are seeing increased growth as well. Automotive is doing fine as gyros continue to be integrated rapidly into vehicle dynamic control/electronic stability programs. An extra bonus is that this is creating additional demand for accelerometers as part of the inertial measurement unit. The consumer market is seeing tremendous growth, led primarily by Texas Instruments Inc. (Dallas) with its DLP chip for home theater. In addition, prices for DLP-based digital TVs have dropped significantly, as has thickness-making them much better positioned to compete with plasma technology. The industrial segment is also seeing a pickup in inkjet printing, which is moving nicely beyond the confines of home printing and into commercial and industrial applications.

Supplier contribution

Due to the complexity of the MEMS industry (both in terms of its many devices and the applications in which they can be found), while some market segments may not be growing as fast as others, the overall movement continues to be onward and upward. What is most exciting is the increase in announcements by MEMS suppliers about the integration of MEMS into specific products, which indicates that the historical reticence by customers to do so publicly appears to be going away. This is very good news.

Marlene Bourne(mbourne@reedbusiness.com) is a senior analyst with In-Stat/MDR (Scottsdale, Ariz.).