Analog Devices was
started by Ray Stata in 1965. From
1965 to 1990, the company has been built into a strong business of semiconductor
design and manufacturing. The company enjoyed double digit growth. The company
was listed in the US stock exchange (Symbol=ADI). However, in 1990, the growth
starts to slow, dropping to 10%. ADI, with its specialty in analog devices, was
not in the computer chip segment.
In 1987, Analog
Devices began to develop a plan for accelerometers. Richie Payne, then working
for Analog Devices, starts to develop new business in new areas. They
experimented in MEMS technology and began to see its business potentials.
Initially, they focus on acceleration sensors for airbag triggering. The then
commercial standard is ball-in-a-tube design. A MEMS option could promise reduce
the size, reduce the cost, and increase reliability.
developed the MEMS technology with a lot of internal resources. Even though the
MEMS technology and business model is similar to electronics circuits, the
fabrication process is not entirely compatible. Both doing research and
fabricating MEMS devices would take up resources the company has for making
semiconductor circuits. Besides, there are a lot of uncertainties, including:
the automotive market is
unfamiliar customer for ADI;
the business model
require ADI to mass produce a lot of sensors with small variety;
manufacturing and quality
control present significant challenges.
market is also very cost and safety conscious. Products that get sold into the
automotive market must perform extraordinarily well for very low price. The MEMS
fabrication is, on the other hand, capital intensive and costly. Therefore, only
a market with large volume can satisfy the business model. However, it is
difficult to navigate the growth period. It was difficult to borrow funds and
facilities. It was difficult to convince auto makers to bet on a brand new
technology. It was not sure how cheaply the company can eventually make it.
Therefore, the picture of profitability is not clear at the beginning.
ADI banked on the
surface micromachining technology invented at UC Berkeley (by Roger Howe and
Ph.D. advisor Richard Muller). The device is based on surface micromachining
process using LPCVD polycrystal silicon as a structural layer and LPCVD oxide as
a sacrificial layer. Both materials are commonly used in the semiconductor
industry. The polysilicon surface micromachining process allows MEMS parts to be
built on top of circuitry (although with a lot of detailed recipe adjustment).
the company sold first batch of sensors to Saab. Richie Payne and team has to
propose to the auto makers an aggressively low per-unit price to start. ADI does
not make money on the deal. This kind of deal would naturally cause concerns
internally in the company, as MEMS division has to compete for resources from
other larger, more profitable divisions. In the end, ADI did not make profits
until at least 1998.
Despite all the
difficulties, ADI should be thankful of its involvement with MEMS technology.
Between 2004-2007, ADI posted a 1% compounded annual growth rate in
revenues, because its core business (handset baseband, modems inside phone) was
becoming a commodity product. In
2008, ADI sold the PC power-management business
to ON Semiconductor (nasdaq: ONNN
- news -
) for $185 million, and the handset baseband business to MediaTek for $350
million. After this reshuffling, ADI is
90% analog circuitry and 10% MEMS. Now ADI looks set to deliver
double-digit growth of 13% five-year CAGR.
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