After sitting through numerous agonizing product reviews filled with pages of lacking, unnecessary and differing content, it was apparent a new approach was needed. Executives often only have minutes to review a business case and approve quote submission and capital investment. Hence it is desired to have key financial metrics in a clear and concise 1-page summary for efficient decision making. Should questions arise, details in back up can always be reviewed.
To highlight this approach, a case study of an automotive MEMS pressure sensor is utilized. Product applications include exhaust gas recirculation, manifold absolute pressure, differential pressure across the diesel particulate filter, vacuum brake boost, transmission oil and more. Let’s consider the vacuum brake boost sensor that is used to monitor the vacuum in the brake booster relative to the atmosphere for start-stop systems to reduce gas consumption and emissions. Globally, vehicles are being increasingly equipped with these systems with Navigant Research predicting 55 million cars will have start-stop technology by that by 2022.
In this case study, this is the first MEMS based sensor the company is targeted to sell. Skipping the design approach that is normally presented, the financial summary for the product is provided below. (click to enlarge to full screen)
Quickly one sees that within 7 years of project kickoff, net revenues approach $25 million with an average profit from operations of 23% (before interest and taxes). In addition, the burn rate is ~$2 million per year before profit is made. The volumes for 5 – 6 major customers combined reaches 5 million units and the sensor price at peak volume is expected to be slightly below $5 / unit. The payback period for this project 6.2 years, net present value is ~$2.7 million and the return on investment is 28%. We also see how the sensor price stacks up against the competition and the market share distribution. Overall a good business case and worthy of investment.
However, maybe there is concern around long term sustainability of the vacuum brake boost sensor market? The most interesting portion of this business is the market size and the opportunity pursuing this technology represents. If designed with proper vision and forethought, the MEMS technology could become a core building block for sensors in alternate applications outside of vacuum brake boost sensing. This is where served obtainable market (SOM) and served available market (SAM) become important. SAM is all the business your company can serve with the planned product technology building block. SOM is the realistic estimate of what can be obtained given available resources and demonstrates planned scalability. Hence this could become a ~$200 M business with new, derivative and next generation products.
Sensata Technologies took this very approach with their Microfused Strain Gauge (MSG) technology. The first application was a sensor monitoring brake hydraulic pressure used in vehicle stability control. As a stand alone business, this was investment worthy. However using the MSG technology building block, this business has seen excellent growth over 15 years. Starting from a similar point as our case study, Sensata’s MSG force and pressure sensors reached $370 million in net revenue (Dec 2012 per Sensata’s 8k filing) and is expected to be still growing with market demand. Sensata’s company wide profit from operations is also healthy at >15% (Sensata’s annual report 2014).
As demonstrated in the 1-page financial summary and later case study, this is a compelling business for investment and should receive approval if aligned with the business product roadmap. Once this strategy is consistently implemented within a company, it will save time in both preparation and review. Furthermore, managers, program leaders and engineers that introduce this approach are shore to impress and stand out among the crowd.