Sensors are poised to join the ranks of high-tech’s most critical components as manufacturers across multiple segments of the economy design the parts into next-generation automotive, connectivity, medical, monitoring and safety equipment. Demand for sensors have surged in recent years and are forecast to climb at a double-digit pace in the near future, creating investment opportunities for some companies and potentially sparking a wave of mergers and acquisitions in the semiconductor segment.
The first set of sensors to gain widespread application were proximity components used in security devices, high-end automotive, smartphones, drones, industrial equipment and aviation. They are necessary devices designed into conveyor systems, roller coasters, touch screen devices, security, home and office equipment and a wide range of other applications.
Today, sensors are so ubiquitous in electronic designs that they are competing with microprocessors and memory storage components for prominence in the latest innovations, including automotive where they number in the hundreds. Sensors anchor the self-driving vehicles being tested today by companies like Google. They are in electric vehicles developed by Tesla and will play a leading role in future transportation devices and other next-generation equipment, according to industry observers.
“We are at a time when new tech categories can come out of seemingly nowhere and lead to disruption in the blink of an eye,” said Shawn DuBravac, chief economist and senior director of research, Consumer Technology Association, in a statement. “Digitization is rapidly changing the landscape of our daily lives, and consumers are clearly choosing to infuse tech in all facets of their lives.”
The electronics industry is witnessing a massive shift in the types of products that generate the majority of its sales, according to analysts. As sales of desktop PCs, tablets, laptops, smartphones and TVs – the traditional drivers of volume shipment – drop from the sizzling growth rates that have characterized the segments, other devices are stepping up to fill the void. Within only one year, the above five categories that traditionally accounted for more than half of electronic sales, will decline to less than 50 percent, according to DuBravac.
Some segments of the sensors are hotter than others. While some are seen growing at double-digit rates for the next years, others are expected to grow at a more modest 5 percent to 8 percent clip per year. MEMS is one of the strongest market segments. A recent research report from Technavio forecasts “the global MEMS pressure sensor market to grow at a compounded annual growth rate (CAGR) of around 14 percent between 2016 and 2020.”
Demand for MEMS have surged as auto manufacturers try to comply with regulatory requests for safety and compliance with environmental standards. MEMS are also designed into equipment that monitor and control various applications in the consumer, industrial and medical equipment markets. In the automotive market, sensors are moving down from high-end vehicles to the middle range and lower-end vehicles.
In fact, sensors represent one of the fastest-growing set of electronic components that manufacturers are designing into vehicles. Forecasters project sales of automotive electronics globally will reach $314 billion by 2020, growing at a compounded annual growth rate of 7.3 percent between 2012 and 2020. The growth is being driven by a surge in the use of sensors in these vehicles due to safety and security requirements imposed by regulators as well as rising consumer interest in comfort and convenience features, according to a news statement issued by Report Buyer.
“Driven by government regulations of safety and emissions, introduction of high-end options in modern vehicles by major automobile manufacturers and consumer demand for safety, comfort, infotainment applications and fuel efficiency, automotive electronics content per vehicle is on the rise,” the researcher said. “As the electronics content is increasing in automobiles, the number of automotive sensors used in vehicles is also increasing.”
Compliance and Market Differentiation
On a short-term basis, differentiation in today’s electronics market appears to be centered on the innovations companies can add to existing products, rather than on the introduction of groundbreaking new products. Apple and its rivals in the wireless handset and mobile connectivity markets, for example, have focused on improving the ecosystem and usability of their products while fine-tuning the capacities and applications of existing devices. These are the areas where sensors could potentially help manufacturers improve their competitiveness.
Stringent requirements for compliance with regulatory laws by regional authorities is also helping to drive up demand for sensors and other electronic components that enable the monitoring and storage of data. As a result of stringent conditions imposed on many economic sectors by regional authorities such as the European Union, demand for products that facilitate the monitoring and reporting of compliance have proliferated, said Faizan Akhtar, an analyst with Technavio. Sales of automotive emission sensors, for instance, are seen rising steadily through 2019 to reach more than $13 billion, Technavio said. One of the reasons behind the surge, the researcher said is the rise in the use of diesel vehicles in Europe.
“Pollution from automobiles has been a serious issue worldwide, which has led to significant research and development of technologies to reduce emissions,” Akhtar said. “Gas sensors are a product of this endeavor to monitor and control vehicle emissions.”
In the communications market, touch requirements have elevated demand for MEMS, which are also used in medical equipment for detecting all kinds of pressures, including blood and respiratory monitoring. Sensors are also used in radars, cameras and ultrasound devices and are designed into all kinds of medical equipment, security and transportation vehicles for anti-collision warnings and for other proximity applications, including infrared motion sensing. In addition to these economic sectors, sensors have been adopted by designers seeking to further reduce the size of their products as miniaturization demands by consumers and service providers rise, especially in the health industry.
“The use of biocompatible material for manufacturing these sensors and their small form factor are contributing to the increased adoption of MEMS pressure sensors in the healthcare industry. With the miniaturization and the growing demand for sophisticated medical devices, the adoption of MEMS pressure sensors will increase during the forecast period (2016-2019),” said Asif Ghani, lead analyst, Hardware & Semiconductor, at Technavio.
Next Wave of Acquisitions
Industry observers believe the next wave of M&A actions in the electronics industry will involve sensor manufacturers. As OEMs trim supplier lists and broaden offerings, adding new technologies and squeezing costs out of their operations, the sector would come under consolidation pressure, they said.
The leading sensors manufacturers could potentially lead the consolidation activities or themselves become acquisition targets. Companies like STMicroelectronics, a major supplier of MEMS (microelectromechanical sensors such as accelerometers, gyroscopes, digital compasses, pressure sensors, humidity sensors and microphones), have parlayed initial investments into leading positions in the market. The segment is also not easily penetrated by new players due to the “high entry barriers in terms of capital and technology”, according to Technavio.
“The leading vendors in the global MEMS pressure sensor market include Bosch, Denso, Sensata Technologies, and Freescale Semiconductors,” the researcher said. “The major vendors in the global MEMS pressure sensor market are already well established, technologically advanced, and operates at high economies of scale, and they occupy more than 50 percent of the total market. Therefore, it becomes difficult for new vendors to enter the market because of high entry barriers in terms of capital and technology.”
This doesn’t mean cash-rich companies will avoid the sensors market, though. The technology and manufacturing efficiencies that suppliers have developed in the sensors market combined with the double-digit growth rate expected over the next five years could be a big lure for enterprise investors and venture capitalist seeking to raise the barrier to entry even higher while consolidating the leading position of current players.
Sensors have so far not attracted the kind of interest shown in DRAM and other storage components because they are not massive profit drivers for suppliers. It’s unlikely also that they will be celebrated in the same way electronics manufacturers marked the introduction of microprocessors and DRAM decades ago. Nevertheless, sensors will be even more critical to the new products electronics manufacturers expect to drive massive growth in the near future.