Mems chips bring revolution to STMicro In March 2005 Benedetto Vigna met representatives of Nintendo about a new gaming project codenamed "Revolution." Mr Vigna, head of the analogue and sensors division at French chipmaker STMicro, had an idea to use a new type of semiconductor called Micro Electro Mechanical Systems for a games console controller, as the chip could be used to track physical movement. Revolution turned out to be the Wii console, the first to use physical sensors instead of joysticks. Mems technology, in turn, marked a revolution of another kind for the flagging European semiconductor industry. Over the past decade Europe has lost much of its share in the traditional semiconductor market to rivals in Asia and the US that either had lower costs or a technology lead. Mems, however, are proving to be a rare area of European leadership in chipmaking, and its widespread adoption in gaming consoles, smartphones and tablets has provided a much-needed boost to STMicro and Germany's Bosch. "This technology began in Europe, and STMicro is pushing the boundaries of this technology," says Jim Tully, chief of research for Gartner's semiconductor team. STMicro is now tied with Bosch as the biggest Mems supplier, with both European companies reporting sales of just under $800m in 2012, according to IHS iSupply. STMicro has gone from number 4 in 2011 to displace Texas Instruments in the US, which is now third. Policy makers, too, have seized on the potential of Mems to revive the European sector. In a communication to the European Parliament two weeks ago, the European Economic and Social Committee said micro- and nanoelectronics were essential for growth and jobs in the EU. Aware that rising costs and consolidation are threatening Europe's place in this market, it has proposed spending more than €10bn over seven years to support companies such as STMicro and Infineon with research and development costs. European chip companies could use the help. Despite the initial success, the Mems market was initially slow to develop, with sales too small to offset STMicro's difficulties in recent years. These have been compounded by a weak euro and the added expense of ST Ericsson, its failed joint venture with Ericsson. STMicro reported sales of $8.5bn in 2012, down from $9.7bn in 2011, and an operating loss of $2bn compared with operating profit of $46m the previous year. The euro hit hard - each 1 per cent fluctuation of the exchange rate has an impact of about $35m per year of operating income. However, sales in Mems are likely to accelerate now as uses for the technology develop far beyond just video gaming and smartphones into cars and healthcare. Even after the latest results were announced in February, STMicro shares rose to their highest level since March last year as investors recognised this acceleration in the company's Analogue, Mems and Sensors division, which accounted for 16 per cent of its $8.5bn in sales last year. Carlo Bozotti, STMicro chief executive, says that although history indicates that even new technologies can become commoditised into a low-margin business, STMicro has the expertise to keep this position. For a start, the company has 800 Mems-related patents and is already defending them. In March it filed a complaint against US-based InvenSense with the International Trade Commission, asking it to investigate the alleged infringement of five STMicro patents. "We have the speed that comes from an experienced team, the patent portfolio, and a lot of trade secrets that enable us to run things at the right yield," Mr Vigna says. Mr Bozotti says: "The way to fight the commoditisation is to combine the functions and address different applications that are more fragmented, because of course the pressure is much stronger if your business is just related to a couple of major customers," alluding to the power of Apple and Samsung in the smartphone supply chain. One such high-growth area is in chips for cars, where the market for so-called "combo sensors" is set to reach $163m this year according to iSuppli, up from $10m in 2011. Another lucrative use of Mems technology lies in medicine, where Mems by STMicro power pacemakers and other products such as Sensimed's "smart contact lens," which detects glaucoma. So-called bio chips using Mems technology can even be built to match a DNA helix - recognising certain genes when they come in contact. Last month Veredus Laboratories, an STMicro subsidiary, launched VereTrop, a bio chip that can identify 13 major tropical diseases from a single blood sample. The product, developed with the Agency for Science, Technology and Research, follows similar launches late last year for drug-resistant tuberculosis and bird flu. "For sure this can be an interesting area margin-wise," says Mr Vigna. The other good point is that here you have a long-term contract. If you make it, the price pressure obviously is different than for the consumer products.