We are a market leader and global supplier of advanced micro-acoustic, audio
processing and specialty component solutions, serving the mobile consumer electronics,
communications, medical, military, aerospace and industrial markets. We use
our leading position in micro-electro-mechanical systems ("MEMS")
microphones and strong capabilities in audio processing technologies to optimize
audio systems and improve the user experience in smartphones, tablets and wearables.
We are also the leader in acoustics components used in hearing aids and have
a strong position in high-end oscillators (timing devices) and capacitors. Our
focus on our customers, combined with our unique technology, proprietary manufacturing
techniques, rigorous testing and global scale, enables us to deliver innovative
solutions that optimize the user experience.
We are committed to growing market leadership in our current business segments
and expanding into attractive adjacent markets. This will be accomplished by
leveraging our core high performance, miniature, low power acoustic expertise,
increasing the audio content in mobile communications products with disruptive
solutions and software and focusing our investments on the segments that we
believe will provide significant opportunities. We will concentrate our research
and development resources on opportunities that exhibit the greatest potential
for optimal long-term returns and by expanding our technology platforms. We
remain focused on delivering high quality products and maintaining operational
excellence across our business segments. We will measure our success through
revenue growth, margin expansion, market share gains, stockholder return and
stakeholder satisfaction.
The markets served by MCE continue to be driven by trends in mobile handset
and consumer device innovation and demand. Today, mobile device OEMs face challenges
to differentiate their products in the global marketplace while managing growing
cost pressures and time-to-market expectations. In addition, consumers expect
better quality voice calls, audio and video conferencing, sound capture and
playback, media content consumption and gaming, as well as extended battery
life. To enable smart mobile devices to handle more demanding audio use cases,
OEMs are increasingly adopting more intelligent active audio components (audio
chipset) and higher performance passive acoustic components. Trends impacting
the smartphone market today include:
Smartphone growth from feature phone substitution. The smartphone segment within
the mobile handset device market has exhibited unit growth over the past several
years. There continues to be a positive mix shift from the proliferation of
lower-end smartphone devices and the further cannibalization of feature phones
(i.e., non-smartphones). The average smartphone continues to drive higher audio
content including more microphones and higher value speakers than its feature
phone counterpart, compounding the growth of acoustic content as mobile phone
sales rise.
High-end consumer elasticity. Consumers are reluctant to downgrade from a high-end
smartphone to a low-end smartphone in most circumstances. This is especially
true as high-end smartphones will likely continue to offer significant performance
advantages and new functionality compared to low-end smartphones.
Proliferation of premium acoustics and multiple microphone adoption. Consumers
are seeking improved acoustics solutions, regardless of the country they live
in or the type of device they are using. As a result, acoustic dollar content
is generally expanding per device for two primary reasons. First, many of the
solutions we are introducing are higher performance and command higher value.
Second, a majority of OEMs are increasing the number of acoustic components
per device. Over the past several years, we have seen an increase in the number
of microphones used in high end smartphones. The benefits to the user are substantial,
including reduced background noise, improved voice recognition, better hands-free
communication and enhanced audio recording and playback capabilities. OEMs and
their customers recognize the importance of these features in their next-generation
products. We believe an additional opportunity exists for these trends to expand
to mid-range phones and tablets, as well as emerging wearable devices. Knowles
can capitalize on these market demands by leveraging our acoustics and audio
processing expertise, as well as our proprietary process technologies, to deliver
solutions that improve the performance of our OEM customers’ devices.
Smartphone OEM market share shifts are likely to remain volatile for some time.
Over the past several years, Nokia, Blackberry and Samsung have lost significant
market share to other United States and Asian-based OEMs who have released smartphones
that have been more readily accepted due to, among other factors, perceived
feature sets and price points. We expect the OEM market to continue to be dynamic
over time, characterized by rapid market share shifts driven by new product
introductions, price points and feature sets.
Shortened smartphone upgrade plans at U.S. carriers. Several U.S. carriers offer
smartphone plans which provide consumers the option of paying for their phone
in monthly installments with no upfront lump sum payment and the ability to
upgrade again in 12 months. Plans such as these could drive greater-than-expected
unit growth (turnover) at the high end, as they are most likely to appeal to
high-income consumers seeking to upgrade their phone more frequently.
Our Specialty Components products are sold across diverse end markets. Portions
of this segment face much greater exposure to capital investment cycles and
government spending, both direct and indirect, as some of these end markets
are largely dependent on project upgrades, expansion and government contracts.
The end markets served by Specialty Components consist primarily of the following:
Medical and life sciences (i.e., transducers, hearing aids, capacitors). Sales
are largely driven by aging demographics, healthcare spending, the rise of a
middle class in emerging markets and government subsidies.
Aerospace and defense communications (i.e., capacitors, filters, oscillators).
Aerospace and defense spending and automation (largest end market), telecom
regional coverage and bandwidth expansion and growing industrial power supply
requirements are a few of the end market trends driving the product sales in
this sector.
Telecom infrastructure (i.e., capacitors, filters, oscillators). Sales are typically
levered to the expansion of large telecom companies, looking to increase wireless
signal in new or existing territories, although these products are also sold
to aerospace and defense companies (i.e., airplane radio frequencies).
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