Medical Electronics Forum

The medical electronics industry impacts millions of people worldwide every day and manufacturers must make sure that they are consistently pushing their designs and products to attain the highest quality possible. This year’s forum sought to gain an industrywide perspective of some of the shared challenges, issues, and new developments among medical electronics manufacturers and healthcare professionals.

Electronic Products: Throughout the medical and healthcare electronics industry, there is a great deal of commonality in trends from various manufacturers and everybody seems to be working toward goals such as: miniaturization, portability and integration. With that in mind, what sort of growth have you seen in the industry over the past year? Has there been any major movements toward a particular area of technology?

Murtaza Fidaali (Director of Business Development, ITT Industries): In the last year, we have encountered a new area of application in robotic surgery. It’s a very interesting concept in the medical industry where a couple of firms have come up with this robotic surgery equipment where remote minimal invasive surgery can be done from a distance of maybe 200 yards or so. Robotic surgical systems finally allow more surgeons to perform complex procedures using a minimally invasive approach.

Remote surgery (also known as telesurgery) gives a doctor the ability to perform surgery on a patient even though they are not physically in the same location. Remote surgery combines elements of robotics, cutting-edge communication technology such as highspeed data connections — and elements of management information systems.

We are doing research and development work to develop new products for this particular application.

Ralph Weber (Director, Standard Products Division, New Scale Technologies): At New Scale, we have also seen a good deal of activity in this area, especially as it relates to minimally invasive surgical systems. There’s a great interest with our miniaturized systems, and we continue to see strong innovations, as well a demand for really versatile tools and flexibility.

I think this largely affects the baby boomer population. These devices really allow for quicker recovery times, which is even more critical with elderly patients, for whom standard surgical procedures are very high risk and may require extended hospital stays. So we’re also doing a lot of development and advancement in this area.

Matt Harrison (Marketing Director of Medical and High-Reliability, Texas Instruments) : Medical in general is a pretty slow-moving industry, at least as we’ve observed it. But one of the areas that has moved very quickly over the last year, and I expect a lot more aggressive growth in, is just everybody trying to figure out what’s going on with connected healthcare.

And this ranges from the ability to monitor elderly people in their homes so that they can stay where they are longer we call that aging in place to things like a mother being able to monitor her diabetic child remotely and ensure that they’ve had the insulin therapy that they need for the day. In order to pull that off, it’s a huge challenge for the industry because you’ve got to have two devices that are wirelessly enabled, but you also have to have the infrastructure and the business model behind it to make it a realization.

So, we’re seeing a lot of companies, like Google and Microsoft, offering new electronic patient record systems that you and I can go in and start tracking our information on. And there are devices that are then being directly linked to those systems. So, if you go stand on the weight scale or take your blood pressure, it would automatically load into these patient records. And the big challenge, I think, for the whole industry is figuring out the business model on how this is going to work.

Who’s going to pay for these remote monitoring services? How are they going to be reimbursed? But longterm that’s what we have to do. We’ve got to get patients out of hospitals faster. They’re all overcrowded. They’re very expensive. We’ve got to get them back into their homes where they can be monitored in a comfortable environment. That’s a big challenge and I think it’s one that’s really rich with a lot of electronic opportunities for the industry.

Christine Van De Graaf (Product Marketing Manager, Embedded Modules Division, Kontron America): The medical market is an area where Kontron, from the perspective of the module division, has seen the majority of growth, especially in portable diagnostics tools and patient-monitoring devices. This is separate from solutions such as MRIs that change technology more slowly. That, too, is an area that Kontron serves with another division. From the modules division, we don’t see that type of medical imaging application as a growth area for us with the computeronmodule and small-form-factor SBCs that we offer.

Medical applications of all types require long life platforms that are available for 10 years or more. There are tools for in home care and they must address the issue of interoperability with diagnostic tools, records tools and patient information tools. All of this is for in the hospital as well as in the home. We see that as an area of growth for embedded-computing technology.

Additionally, we see that doctors and other emergency medical service personnel require remote access to patients and their information. For example, when an EMT uses a diagnostic tool onsite with a very fragile patient (whether it be an elderly patient or a very young patient) it is necessary to be able to do a quick scan that would gather sufficient information in an appropriate amount of time and then communicate it back to a doctor, either in an office or preparing to receive the patient once they’re able to be transported to the hospital.

We also see, in the hospital environment, that efficiency is key. There can be no down time. We have to have systems that will continue to run even on minimized power so that they can be recharging or processing information at a sublevel of power, but without having to go through the whole startup time to be able to gather information from the next patient.

Those are the areas that we see for growth from our perspective in medical and I think it speaks to the aging in place that Matt mentioned, as well as improving efficiency in the hospitals so that we can get patients back to their homes.

A global perspective

Electronic Products: In recent years, medical professionals and manufacturers have been working toward more efficient ways to monitor people from remote locations, such as their homes. Is this a trend that’s going to be looked at across the globe?

Matt Harrison: India is a perfect example of a country where you’ve got over a billion people but 6570% of that population are living in remote villages where there’s no access to health care. So, they’re looking at how to deploy a nationwide infrastructure that’s obviously going to be wireless where they could potentially have kiosks in remote regions where a patient that cannot get to the urban center and visit a doctor could go to and be somewhat diagnosed and maybe even looked at via telecom by a doctor in one of the urban regions.

So, I think we’re going to see a lot more of that, even in some of the more costsensitive regions of the world, like India and China. Wireless is going to have a big impact on the industry.

Murtaza Fidaali: Just to expand on Matt’s point, there is literally laptoptype portable equipment available for ultrasound and other diagnostic examination methods to take to those remote areas, whether it’s India or China.

The use of portable ultrasound is on the rise both due to the availability of used machines at a fraction of their original cost and due to the huge improvements in portable ultrasound image quality over the last few years. Ultrasound devices are increasingly being used in and for procedures where physicians need inexpensive, nonradiating imaging for diverse applications such as real time assessment in emergency situations, guiding biopsies and nerve blocks, as well as for full diagnostic examinations.

ITT is investing in research to develop high-power, high-density, smallinsize, and high-reliability products to support such innovations by major OEMs in the medical industry.

Donna Sandfox (Product Manager, Sensors, OMRON Electronic Components): I concur that in the medical industry, remote monitoring applications have been one of our largest growth areas of the past year and we continue to expect to see that in the coming years. Remote monitoring can facilitate shorter hospital stays and fewer office visits, making sure patients are more comfortable and offer cost savings to providers.

The other area where we’re seeing a lot of activity is moving toward more portable devices. The patients’ desire is not only to be at home, but then once they’re recovered further, they want to be able to leave the house, go to the store, even travel with their equipment in tow.

Devices, such as oxygen concentrators, have become much smaller in addition to running for longer periods of time between charges. I see the demand coming from both the patient and medical provider sides.

The challenges of designing

Electronic Products: There is also a demand for making these devices user friendly, so that patients can easily operate them on their own, either inside or outside of their homes. What are the challenges that you’ve come across when to making these devices more patient, or user, friendly?

Scott Sentz (Director of Marketing, Novacap): Predominantly, our components go on hybrids which can be found in implantable devices, pacemakers or defibrillators, and our continual challenges in those areas include board spacing efficiency, efficiency in component placement and reliability which is probably the most critical.

Essentially, achieving the highest level of reliability where you don’t have any latent component failures is extremely critical. If a capacitor is shorting out across the battery, you are potentially risking a patient death. So, our continual focus on high-reliability components is ensuring that they’re designed, qualified and certified to meet the critical device specifications they need to be medicalgrade.

And to do that you’ve got to have a bulletproof screening procedure, which is absolutely necessary to ensure that when the component is inside of the patient, it’s operating in the live portion of the component and not the infantile portion where you can actually have some failures. So, that’s where we see our challenges in medical electronics, specifically in the life-sustaining area.

Donna Sandfox: In general, it seems that lower power consumption for longer battery life, and lighter weight requirements are continuous challenges in this industry.

Murtaza Fidaali: The language barrier is an issue in countries like China, India, etc. OEMs are developing multilingual brochures to make the products userfriendly in those regions.

Ralph Weber: Regarding the dispensing of pharmaceuticals, we’ve seen the headlines and some of the issues that can happen with misdispensing and misdosing. With the elderly, there’s also an expanded need for devices in the home and certainly in the hospital environments. This relates to data management and also dosing management; devices that support the pharmaceuticals and appropriate dosing, even in remote management. I don’t know if anybody else had seen a growing interest in that particular area, but certainly we have.

Dean Collins (Senior Marketing Manager for Display SBU, NEC Electronics America): That’s been a large market for us for a while now, medical dispensing stations, but most of them, from our perspective, still seem to be deployed in hospitals, doctor’s offices or patient care environments.

But to the point that you’re making and a point that was made earlier in terms of trying to be more cost effective for the health care industry as a whole, we’ve actually seen a widening of the types of material or components that would be dispensed in those systems. So, if you go back five, eight, maybe 10 years ago, it was a very large growth area in medical to help minimize errors and to make things more efficient for the nurses. These medical dispensing stations would be like an office copy machine where you have a large piece of equipment with a smalltomidsize TFT display mounted on top, which is our perspective for this market segment.

As far as those units being portable and out in the home environment, we have not seen that migration yet.

Steve Kennelly (Manager, Medical Products Group, Microchip Technology): One of the areas where we’ve seen a lot of interest, which is really coming into its own now, is in the area of drug delivery — both for patient use and also in critical care environments.

For example, applications such as infusion pumps and iontophoresis are being used in patches or combination devices that are combined with a specific medication in a smartpill concept, where the release of the medication is timed to correspond with the pill reaching a certain part of the digestive tract. So, it is similar to what you’re talking about being related to in the pharma field, with a drugdelivery device.

Electronic Products: Is it a challenge for designers to keep production and design costs low?

Dean Collins: We definitely have seen a trend where costs have become much more of an issue in the healthcare industry over the last three to five years, more so than going back 10 years ago.

For us, we’re unique in that we’re an industrial LCD supplier. Unlike other LCD suppliers, our number one market worldwide is industrial, and medical is our number one market within the industrial space. It’s a market segment that we have 20 plus years experience in. So,yes, we definitely have seen more of a trend especially over the last three to five years.

But I think there’s a flip side of that coin, and that is you still have a lot of attributes related to the industry that go beyond cost, especially relating to the medical or electronic equipment providers in that they have long-term product and service support needs for 5, 10, 12, 15year contracts.

For instance, long product life cycles for their products in their space is still a key attribute for the designers, as is the quality of that product in terms of being serviceable and usable for that period of time. It’s also an industry that, unlike a lot of other electronics component applications, has a very, very long design cycle. In most cases, at least for the customers that we deal with, you’re talking about design cycles that are a minimum of 12 to 18 months and can be up to two to three years before product goes from design to mass production.

So, sometimes they’re conflicting objectives. They can be more costefficient if they’re picking components that are sort of riding the consumer side of the business. In other words, products or components that had very large, high volumes attached to them because they’re also going into let’s say the PC/laptop industry or they’re going into other consumer applications. But those applications and those products change very, very frequently.

If you look at the laptop market as an example for a display component, those products are changing every 6 to 18 months, and medical equipment providers can’t absorb those frequent product changes or short product life cycles from a component standpoint. So yes, we do see it as an increased objective, but it also conflicts with a lot of what the design engineers need to think about when they’re picking the components and designing their products.

A lot of it has to do with how it’s going to be used as well. Anything that has a consumer kind of a feel to it, anything that’s disposable, typically designers are looking at pennies. So, cost is excruciatingly important in those kinds of applications. The question though, is that it gets complicated depending on what kind of a device and how it’ll be used.

One of the things that I was thinking when Murtaza was talking about the remote office surgery, is that you’re talking about a pretty expensive piece of equipment there, and something related to that would be like minimally invasive surgery where things are done through very small openings in the body.

New tools are being developed to enable that kind of procedure that may be more expensive than the previous tools that were used, even the disposable portions of them. It increases the cost of the device, but it allows the hospital that uses them to run more patients through that operating suite, and therefore it is actually a cost savings to them to use the more expensive device. So in those cases, the cost that goes into the device is much less important, because it’s enabling a different part of the total equation.

Murtaza Fidaali: The dilemma we face in terms of this cost competitiveness is that we design the product in the U.S., patent it and in order to be costeffective we have to build it in China or other low-cost countries (LCC), so we end up outsourcing the complete product.

We transfer patented technology to ITT sites in LCCs if we cannot do it here in the States. And there, the patents do not really apply, so that becomes a real critical issue for us, how to handle the cost versus still keeping the technology within the company.

Christine Van De Graaf: Likewise at Kontron, it’s our goal to choose the best components that will have the appropriate life cycle to be able to deliver the product for the 12 months or longer design cycle for the medical application, as well as going through their FDA and other approval processes, and then also have the life to go through the next 15 years.

As you take designs to contract manufacturers that are outside of the U.S., a challenge that is often encountered is how to keep control of the components used so as to ensure high quality. As the CM works to provide the best cost, sometimes they’ll suggest alternative sources for essential components. It’s our responsibility since we control those bills of materials for our designs to only qualify the components that are appropriate with respect to quality as well as cost.

It is a constant battle to have the right quality and still maintain a fair cost so that it carries through to the customer. But when you outsource to a company, you do lose an element of that quality control if you’re not on site and continually auditing and making sure that the standards you requested are followed to the tee.

Dean Collins: I think one of the things we try to do before we get to that stage is help instill certain key points that we bring as a supplier upon the senior management teams and the decision makers within the healthcare organizations and try to have them look at the total cost of ownership for either the sourced component or for the integration that they’re doing.

And so, some of the things that we try to highlight before they go off and look at either internal offshore lowcost manufacturing sites or thirdparty EMS/CM providers are the stability and/or longevity of the product life of the component we’re providing. We also talk about the backward capability we are providing when a product is redesigned for us.

One of our core competencies is having backward compatibility between different versions of products. As we migrate from one display to another, designers can physically use the same mounting holes and the same mechanical dimensions to drop in a new, upgraded version versus an older version, and they can go back 10 or 15 years with the same form factor compliance.

We also talk about formal PCNs and long end of life cycles, so even if something is going to be phased out, getting the healthcare companies an 18 to 24 month window for lasttime buys is also another key attribute that they should be thinking about before they reach the point of deciding where they are going to do be doing the manufacturing. So Christine, to help with the point you’re raising, if you do these things up front and help to bring the total cost of ownership into perspective for the healthcare equipment providers, it can help address the issue of alternate sourcing. We’re trying to get the customer to look at the total cost over the life of the program. Usually for us that’s very much a key differentiator, and there’s usually a lot of value that they can tie to that.

Innovating the industry

Electronic Products: What about some innovations that you’ve seen in the industry recently?

Matt Harrison: I really think that we’re in kind of a perfect storm situation here with health care, in the sense that the economy is going down so as suppliers we’re seeing some of our traditional markets like consumers, telecom, automotive fade down a little bit so everybody’s looking for new growth opportunities.

And given the big megatrends in health care rising healthcare costs, aging populations, the need to get healthcare to emerging regions in the world there’s going to be a lot more spending there moving forward.

So, I think what you’re going to see as an industry is a lot more suppliers tailoring developments for medical applications and that’s something that we’ve done a lot of here at TI.

We’re developing now, for example, ultrasound chips, whereas it was mentioned earlier that medical companies were having to use consumer offtheshelf type products that might not have been so optimized for their applications.

Now they’ve got an opportunity to use something that’s specifically tailored for an ultrasound system or an MRI system. You can have glucose meters on a chip now. So the level of integration that’s happening in the industry is very significant.

Implantables is another area that we’re focused on and where we are seeing a tremendous amount of innovation. If you go out and talk to the implantable leaders in the world they’ll talk about the opportunity to put minidevices inside of us to monitor and also to provide therapy. And when you’re putting a device in the body, the challenges around power consumption go to a whole new level. We’re talking about devices that have to work on a battery for five to 10 years. So, ultralow power is essentially redefined in some of those applications.

I think companies are taking a more dedicated approach to the health care industry and that, over the next few years, is going to innovate where the stateofthe art is currently.

Ralph Weber: At New Scale we’re also seeing quite a bit of drive towards implantables and we’re tending to customize to specific applications and work directly with customers. There is a significant challenge with the integration of miniaturized systems and implantables.

We have to work very closely with the customers and push the limit of some of the technology in materials and everything else that is required for these systems. So we actually have realized that this is a real benefit for innovative development and have a custom development division that specializes in these technologies. It’s a huge benefit for the medical industry and our medical customers in this area.

Scott Sentz: Going on with what was said earlier in terms of implantables, we see a push for advancement in material systems, specifically nano, where you can get higher-energy delivery into the defibrillator type of implantable applications as well. So, we see that as a big push in terms of miniaturization but at the same time maintaining a given higher-level power delivery.

Donna Sandfox: For portable devices we’re also seeing higher levels of integration being requested of us, as opposed to designers using offtheshelf component sensors. We’ve had an increase in requests to put multiple sensors in a single package, with custom calibrations and output configurations. The driving forces behind these requests are to reduce size and total costs taking both component and assembly costs into consideration.

Market Trends

Dean Collins: I wanted to come back to something that Donna said in terms of integration. On the display side, we do see more requests for us as a supplier to integrate certain components or technologies into the LCD module that healthcare companies were actually integrating on their own, or outsourcing to a third party. As an example, many of the applications included a touch interface for either the patient, or for the doctors, nurses, hospital staff, etc.

And so, they’re looking for display providers to be able to incorporate that touch technology within the display. That’s also an area that we’re developing, and we’re looking at a couple of different options in terms of how to do that.

One of these options is through an external touch interface being integrated to the module at the factory level. Another is through incell touch technology, which would be very, very unique and very different for the medical space. But, then you get into some application issues. In some cases, the touch technology needs to work in a capacitive mode, and in others the touch technology needs to work in a resistive mode, resistive being more of a common touch application as well as more costeffective.

There are also efforts to try to integrate other technologies into this display, almost like creating a sub assembly. On one end, the touch technology is part of the point made about integration and new trends that we’re seeing, and the other end goes back to the point made in terms of healthcare companies trying to be more costeffective. Then, how does that tie into the quality standards? Quality can be viewed from the standpoint of the product or the component that manufacturers are offering as suppliers to the healthcare equipment providers, but also quality in terms of service and support. And so it goes back to another point that was made earlier where you’ve got more and more pressure for these companies to be costeffective for their own product, especially when they’re trying to grow their market share in the emerging countries.

As mentioned earlier, in China or in India, the cost structures for the equipment that is demanded there is much lower than what we have seen either in the Americas or in Europe, but certain things have to give when you get to a certain cost point.

So, these are some of the dynamics or trends that we’ve seen much more of in the last three years than we did in the previous five or 10 years. Another thing that comes back to the points of integration and portability, is the increasing amount of requests we are seeing for products to be used in a more “green” fashion. Three years ago or even two years ago, RoHS was the big initiative and everybody needed to be RoHS compliant in terms of the materials and components they were sourcing.

For us on the display side, LEDs have seen a big, big push within the last year or two and LEDs do two things we’re talking about. They can be a more costeffective way to execute certain solutions for the displays on equipment used either in the hospital or out in the field. LEDs also can be more portable in that they are a lower powerconsuming end product, so they give a longer battery life. They are also more green because you don’t have the mercury content that you get with the traditional CCFL backlight systems that have predominately been in use and still account for probably more than 90% of the LCDs that go into the medical space.

Electronic Products: When it comes to keeping a product “green”, does that present a whole new series of challenges to the design team?

Matt Harrison: I think it’s something that’s been largely overlooked by the industry for the last few years and I believe there’s been an exemption on RoHS compliance, at least in some cases with medical devices. But like Dean was saying, we are also seeing a big trend with our customers who are starting to look at migrating toward more green solutions as well as RoHS compliance in medical devices.

The whole area of quality and reliability is one that we see our customers really taking seriously and I mentioned earlier that just the requirement for a guaranteed lifetime of a product is obviously very important.

Even beyond that, I think offering more of the medical grade of components is going to be a trend that we see moving forward. It’s something that TI’s currently doing because we’re able to leverage our lineage in automotive and in the military industries where quality on the component level has been much more stringent.

So, we’re taking a lot of those best practices and now applying them to the medical industry.

Matt Harrison: One of the things we’ve seen here at TI is if you take a cursory look at the medical market and the big medical companies out there, it appears that there’s really just a few companies that have a tremendous amount of market share, whether it’s in imaging or consumer medical or diagnostic and therapy.

But what we’ve found is that as you peel the onion back a little bit, you realize that a lot of the growth of these big companies has come through acquisitions. A tremendous amount of acquisitions. So it seems to us that innovation happens in both the big companies and in some of the smaller companies and universities as well.

That has really challenged TI and how we deploy our strategy. We’re calling on, obviously, the big companies, but we’ve also had to put infrastructures in place to call on some of the smaller companies, universities and even third parties. So, I’d just be curious to see if some of the other forum members are seeing some of the same trends.

Steve Kennelly: Yes Matt, we see something very, very similar to that. In fact, you might have been describing another facet of what, I believe, Dean was saying. One of the things that I’ve noticed is that maybe medical OEMsthe big companiesare a little less connected across sites and divisions then you might see in another industry.

I think a good explanation of why that could be is what you’ve just described, thatmuch of their growth occurs through acquisition. And it’s not just acquisitions of other companies that already have a product or technology, but in very large measure what they require is technology, IP, or a particular design or device that might be designed at, like you said, a university or at a very small research company.

Then, that company gets their system up to a point where it is almost ready for productization. At that point, one of the big guys will acquire either the company or that device and take it to market.

Dean Collins: Agreed. Although I wouldn’t rule out that some companies acquire others for different reasons, like the infrastructure that they need to deploy their end products and services.

One good example of that: I think it was early in 2008 where Mindray a China-based medical equipment provider had acquired Datascope, a U.S. company. In this particular case, it was kind of the reverse where it was really the brand recognition and the infrastructure that they wanted.

Steve Kennelly: Yes, no doubt. That is where a substantial portion of our customer support in the medical space goes, that is, in staying with those designs from development through productization, often with a different company.

Dean Collins: Absolutely. I think this is one of the interesting things about this industry, and it goes back to one of the earlier questions, which was where are we seeing growth? And that really is one of those market segments that is very broad if you look at the sub segments, right?

You also have products that fall into the medical or healthcare space that really could be part of the cosmetics market, the dental industry or the eye care industry. It could as simple as a patient monitor, a bedside monitor, an athome care unit or a wound care device. Or, it could be as high end as what we were talking about earlier with PAC systems and creating an infrastructure that’s connecting the information between hospitals, doctors, patients, emergency response teams, or high-end diagnostic or radiology, CT.

So, I’m not sure of the word I’m looking for, but the medical/healthcare market is unique in terms of the diversity of the actual usage of the products we design for, and the wide variety of companies involved can all fit into this one general term.

Steve Kennelly: We’ve got a tremendous diversity of products that are produced within this segment, and yet they share a small number of common attributes that bind the participants together.

Things that they have in commonincluding the need for extremely long product life spans, longevity, high quality, low costall of those things.

Dean Collins: Exactly. In addition to that, there’s just the stability of us as component suppliers. This is stability not only in quality, but stability in production availability and pricing. It’s very, very different than the products that go into more of the consumer side of the business.

Ralph Weber: A lot of the innovations that we’ve seen in the past are coming from smaller companies, whether they are bringing products fully to market or they are being absorbed by a larger medical companies.

I’d like to get some perspective from everyone else on the economy’s impact on these smaller companies with respect to credit tightening and the overall global economic conditions.

Matt Harrison: I think one of the obvious effects is going to come from the venture capital markets that have been funding a lot of the new innovation, and a lot of the new startups are going to really slow down.

They’re going to be paying more attention to established funds that they already have and continuing to fund those. So,although venture capital for health care appeared to be growing over the last few years, I expect it to slow down a little bit. But there are quite a bit of funds that are still going to be available, whether those are state mandated or federal sponsored funds, or funds that are being sponsored by countries in other areas of the world.

Some of those funds, I think, are going to remain intact and they’re still going to be there to help support some of the innovation that needs to happen. Universities are still going to be a major contributor. So, I agree with you, I think it’s going to slow down, but I don’t think it’s going to come to a halt. I think there’s some of these funds that are going to linger on and continue to support some of the new development.

Steve Kennelly: I think you’re absolutely right about the venture capital money slowing down. However, keep in mind that a major source of funding to a lot of those smaller companies doing the basic research now is also from the giant OEMs who will wind up with a stake in whatever is being developed. And I haven’t really seen that slow down.

Matt Harrison: No, you’re right, I think to a large extent they view these companies as an extended research arm and here at TI, we created a $15 million university research fund that we can use to go out and see some of these early stage investments just so that we have better visibility in what’s going on in the market.

So, I think it’s going to be corporate sponsors like you mentioned and a lot of university research is going to continue. But some of the venture capital funds, seems like they may slow down a little bit.

Outsourcing vs. in-house manufacturing

Donna Sandfox: In my own segment of Omron products, which may be a very niche area compared to the wider group we have on the forum here, I’m seeing more design activity coming in from contract design firms and a decrease coming from the medical device manufacturers, the OEMs themselves. I was wondering if anyone else was seeing this increase in the outsourcing of design work as well?

Murtaza Fidaali: Actually, I have seen a trend where OEMs are approving the designs and qualifying the parts before they have ITT deal with CEMs to procure parts. OEMs are the ones who negotiate the price in the beginning. Now the trend is changing to CEMs being the ones to negotiate a better price for OEMs, even though initially the price target is set up for OEMs.

Donna Sandfox: Right, the design and testing are approved by the OEM, but are you seeing the up front design work at the OEMs? Or are you seeing more of that being outsourced?

Dean Collins: For NEC Electronics America, we obviously see a select portion of this space. Our group here represents LCD display modules, so if it doesn’t have a display, we couldn’t really comment. However, because it is such a significant part of the equipment providers’ brand recognition, and perceived value and quality standards, we really do not see as much outsourcing, at least as it relates to the portion of the design that incorporates the display.

So we see some of that trend, but for us it’s something that we’ve dealt with for a number of years now, and so we’re used to it, so we don’t see anything increasing any more so than what we saw three or five years ago.

Christine Van De Graaf: What we see is that it’s been a bit balanced over the years. Some of the smaller designers who don’t have all the capabilities for the design inhouse are turning to outsourcing.

But they’re not necessarily turning towards the big CMs. They’re going with a smaller design house or a certified design partner for the boardlevel products. And really what it comes down to is: what capabilities are inhouse? If there is software capabilities inhouse but not so much on the hardware side, then the application designers are turning to an outside resource.

If they have a good balance of very skilled hardware folks inhouse as well as software folks, they’ll turn to Kontron for the module or the single board computer, but then they’re also having us work together engineertoengineer with their hardware folks inhouse to get the rest of the system together. Sometimes we do design review of the custom carrier board that they’ve designed inhouse. Other times, we are asked to do the custom carrier design for them.

Some designers do have a great deal of design expertise internally and they take pride in that. As another colleague on this call has said, it does give them an element of differentiation from some of their other application design competitors that have chosen to just take it outside of the company. As soon as you let go of a design, it’s in somebody else’s hands and somebody else gets the glory for it. So, there’s still a little bit of the “invented here” that goes on at the leading medical designers.

They take great pride in it and they have a very successful history of it. It’s part of who they are. As suppliers to them, we’re supporting them, acknowledging their skills and helping to make their complete application solution even better.

Donna Sandfox: Fairly recently, within the past year or so, it seems that I’ve been working on more projects where we’ve been involved with a design firm who has been contracted by an OEM. And I was wondering if that was just an anomaly or more of an industry trend.

Steve Kennelly: This is turning out be a good topic for diversity of opinion. I agree with what Donna is seeing. I don’t know that we’ve seen a large spike in activity, but it certainly is a growing trend. We’re seeing both the large OEMs and small companies taking advantage of outside design resources.

And in fact, it’s become significant enough that we’ve created a special group of design partners that are medical specialists who are familiar with working in this space, with whom we work with a number of our customers, large ones and small ones.

What was just described is definitely one of the ways in which it works for us, where we’ll get a call from a design house who says I am working on a project for this OEM, and here is what I am trying to do.

There are also cases where the OEM will take something to a certain stage and then tell us that they are handing it to a design house. Additionally, there are cases where I’ll be talking directly with a customer who needs some help with a particular issue or in taking something past a point where they are comfortable, and we will put them in touch with one of these design houses.

Dean Collins: Another trend that we’ve seen — and this is a function of the acquisition process that we were talking about earlier — is more multisite locations within the medical equipment OEMs in terms of where the design is taking place. In other words, we see a trend for more geographically dispersed teams involved with the program, but still under the umbrella of the original company as opposed to being outsourced.

From our perspective, it seems part of comes as a result of trying to take better advantage of the resources that they have through whatever companies they’ve acquired or through whatever divisions have been created, and having individuals in different physical site locations.

Christine Van De Graaf: At Kontron we see it as well, not only with teams that are dispersed throughout North America, but also with teams dispersed throughout Europe and Asia.

Dean Collins: I want to add another trend we’re seeing with a few of our larger medical OEM equipment providersa platform product. As different design teams are geographically dispersed and with the acquisition processes that we were talking about, we’re seeing some of the larger companies trying to create what they’re referring to as a platform product so that there is more synergy with the different design locations in terms of the component suppliers that they can use from an approved vendor list. Also, from a hardware standpoint, this provides commonality whether it is on the system board or it is on the display.

The OEMs are consolidating more of their sourcing so that they’ve got more leverage with the component suppliers. What we see is a trend for them to try to take a portion of the key hardware components, whether it’s the display or it’s the system board, and try to standardize certain key components. So, if they have four or five different versions of the end product with different names, price points and feature sets being produced in different portions of the world, they would have a commonality in some of the components that go into it, so that they’re getting economies of scale with respect to pricing. They’re also getting cost efficiencies with respect to inventories, as well as leverage points with suppliers.

Christine Van De Graaf: I would say that’s a trend that medical has taken from other industries. We see it with designs based on computer on modules, really because that’s what computer end modules are intended to do.

You take advantage of economies of scale when you have a component or full design that can be used in multiple ways. This also allows for scalability when using a single carrier board and changing modules for different performance. Alternatively, the same module can be paired with various different sizes of a carrier board, but with all similar capabilities so that you have the right piece for the right use.

That’s something that I’d say medical is definitely taking from industrial automation. For quite some time we’ve worked with industrial automation companies where a single designer will want to have a different kind of scale used in various areas.

It may need a larger one for automotive automation and it may need a smaller one for more food and beverage. But they really don’t want to have to start over and have a completely different piece for each one. They want to have something very similar that they can take that site of knowledge and apply it in muliple places. And that’s very much what medical is doing. You see it not only for our variations within a single generation of a product, but from generation to generation. It’s always the same thing, you don’t want to start all over again, especially with something that’s customizable.

A carrier board is where the customization is for a COMbased solution. If you have to have change custom features from generation to generation you might as well have gone with a single board solution that you have to respin every time you want to add something new to it or change processing capability. If your customization can stay consistant from generation to generation, you can use the same carrier board and just change the CPU module to upgrade performance. This is the less costly route.

So, that’s definitely a trend that isn’t necessarily a new one within medical for Kontron. We’re seeing that as medical has adopted it a bit further as compared to what some of the industries have already been doing for quite some time. Modularity is really helping them to have the scalability, reliability and technology anywhere you want it.

Steve Kennelly: I agree with both what Dean and Christine are saying. Maybe part of why that is happening is because, as we’re seeing the increased penetration of medical devices into everybody’s lives, we’re getting to the point where these OEMs are now moving more towards a higher volume model and away from the traditional medical model, which has been very high mix and very low volume in each permutation.

But once they’re getting it down to a manageable number of platforms and the volume of each of those platforms is high enough, they’re kind of, as Christine said, catching up to what other industries have done for a long time, and taking advantage of these same techniques like platform standardization.

Donna Sandfox: I have seen that as well, where a company will release a product series and within that series have several different model numbers with varying features between the model numbers. Then going forward, there will be new versions of the model numbers as they make minor improvements.

I’m wondering if some of that might be driven by FDA approval, where if the overall platform is approved, minor changes to the platform can have a pretty quick turnaround in the approval process.

Dean Collins: I don’t know for sure, but I was under the impression that, from a naming convention and an end product series standpoint, any changes to the platform usually require recertification. I’m not quite sure how the regulatory and qualification processes differ between versions.

But it was our understanding that, from a component standpoint, any time a part number changes within their system, even if their end product and everything else stays the same, depending upon the application it can require quite an extensive recertification process. Again, this is data from our experience. We’re not as versed in FDA approvals or certification formalities since we are a component supplier.

Ralph Weber: I think what’s probably driving it more is the extensive cost for developing a platform and being able to extend products for as long as it’s possible with the initial research and development investment in those platforms. So, it is very common in the computer industry, and certainly in the printer industry, where a similar model is used.

Dean Collins: Yes, and at least from NEC Electronics America’s perspective, it seems to be more of a function of maximizing cost efficiency, whether it’s on the design side or the sourcing side or leverage that they can have with the component suppliers.

Another trend that I was just thinking about as we were talking about this latest subject: We are seeing some unique indirect results for the equipment providers in new applications that they think of as displays and, again, I’m strictly talking about it as the display industry impacts what they see.

In other words, we’ve seen some companies take advantage of the growth in the cell phone, smart phone and what we would consider to be sort of the more mobile types of consumer LCD products that are hitting the market, to creatively think of unique ways to differentiate themselves within their product portfolios and come up with new applications.

We’re also seeing a trend in patient monitors that is moving toward a merging of technologies. Traditionally, patient monitors have strictly been a bedside unit displaying the vital statistics for the doctors to assess the condition of the patient.

But what we’re seeing is sort of a merging to try and take administrative information and, through wireless infrastructure and different systems, port some of it to those same monitors. In addition to inlcuding the patients’ vital statistics, a third component that is being merged in is an entertainment system for the patient, so that while they’re sitting in their bed and recovering, they can surf the net or can watch TV. So, there seems to be a convergence of usage to single pointofuse monitors. For instance, one more recent trend that we’ve seen is the this term of wearable patient monitor. It seems like a number of companies have been taking a much closer look at creating a system that connects the doctor, nurse or hospital patient monitoring system with the associated key vital statistics or key patient information. That system would be a wearable product, something that would be worn on the wrist by the patients as they are moving around the hospital moving from room to room to give the doctors and the nurses more access to vital information or specific patient information without having to match an ID, per se.

So going back to the sorts of trends are we seeing for roles, it’s interesting that certain things on the consumer side of the display business seem to be impacting the medical space.

Application and intergration

Electronic Products: That’s a very interesting point about how other technologies are influencing some of the trends that we’re seeing in medical. It’s something that I had not considered in terms of product development and design.

Ralph Weber: It’s definitely the case with NewScale. We are heavily involved with cell phone applications and autofocus and zoom type applications. Miniaturization and reduced power requirements are being driven in that particular area. Other applications and other industries definitely do push the envelope and have direct translation into medical devices. Obviously there are other challenges with medical applications that arise, but the technology and the base core competencies can translate very well into medical applications. So we see that certainly as a component supplier and from a system supplier standpoint.

Donna Sandfox: Dean, I normally don’t pay a whole lot of attention to the display aspects, and I couldn’t call it a trend, but I have seen one example recently where a company we’ve been working with is kind of making a big jump to a new platform.

One of the advances that they’re putting in their new platform is in addition to the surgical unit that is used in the operating rooman option for a separate handheld display tool that allows the display to be brought closer to the surgeon and more easily monitored.

Dean Collins: Yes, that makes sense. I think that goes back to what we were just talking about, with one industry having an effect on the other in terms of creative uses. So yes, we see what you’re talking about. Are you referring to the operating room environment?

Donna Sandfox: Yes, it’s a device that’s used in operating rooms. It’s not a huge device but it’s not a small device either, maybe a foot tall by a footandahalf wide and a foot deep. So it’s a decent sized device with a fairly large screen on it. But they also have a smaller side unit that they can put anywhere, where the entire device is the screen so that they can monitor the output more easily. It’s probably no bigger than oh, maybe a BlackBerry.

Dean Collins: So it essentially shows a similar or same image as what’s on the main unit?

Donna Sandfox: I believe it can be the same image or it can be set to one or two outputs they are particularly interested in.

Dean Collins: Yes, that’s definitely along the lines of what we’re talking about. I think five years ago they probably wouldn’t have thought of being able to do something like that, but again, new ideas are created as people are playing with their BlackBerrys: “Hey, why can’t I do this in the operating room, in the environment that we need, how do I get the information that I need from my surgical instrument or system?”

Yes, we definitely see the same thing. Along these lines, again strictly speaking from the display standpoint, another factor that we sometimes see is where consumer types of products or applications seem to be influencing some of the design engineers and the creativity on the medical side, kind of the “Apple effect”, where some design engineers on the display side seem to want to please a more consumeroriented mentality. By that I mean thinner, smaller, lighter, and also having wide form factor, because that’s what people are starting to get used to seeing with personal video players and other associated products. We’re seeing some of that effect as well.

When you talk to some of the engineers about why they want to go to a wide form factor product, like a 16:9 or 16:10 aspect ratio, in most cases it’s not really a “must have”, it’s more of a “would like to have”. When you dig into the details, it seems to come back again to the point that I was making earlier where some of the more consumer type of end products that are out there seem to be influencing the thought process for the design engineers in the medical space, which we would not have assumed five or six years ago.

Matt Harrison: As I mentioned before, the ‘80s were transformed with the PC era, the ‘90s with the communications and the cell phone era. And now we really see 2000 and beyond as kind of a healthcare opportunity. And I think the fact is that everybody’s going to be spending more time, attention and investment into it, and that is going to lead us to some real innovation in the health care space that just hasn’t been there. I hope that we’re able to put all the right business models, reimbursement models in place that will allow for some of this new technology that’s being developed to be deployed readily.

But clearly, just as we get out and visit with our customers and talk to them about what they want to try and achieve, it’s significantly beyond where the state of the art is today. And they’re really pushing us to come out with lower power solutions, higher performance solutions, higher levels of integration. And it’s a real exciting time.

Electronic Products: Whether they are receiving care in a hospital, visiting a medical professional’s office, or using a device at home, I think the medical industry is one that most every person in the world will experience at some point in their life.

Matt Harrison: I mean we’re working in an industry that actually makes a difference in people’s lives. And that’s different than, I guess, cell phones do to make a difference in people’s lives, sometimes good, sometimes bad.

But we’re talking about an industry here that is really trying to improve the quality of health care and the quality of life for folks and that has a big impact with our customers and with the people we have here at the company working on it. It kind of brings a new level of passion for the game that we haven’t seen in some of the past areas, so that’s a great point.

Dean Collins: I agree with what Matt just said. For us, it’s been a number one market for many years, but we see continued or sustained growth in this area and more not as aggressive as some other areas— but more stable and more manageable. Going back to the point I made earlier, part of that is because of the diversity of end applications that roll into this category. For component suppliers, I think it will continue to be a very, very important end market application. We do not see anything changing or taking away from that at least for the next five months here.

Murtaza Fidaali: I agree that the medical market is steady and will grow with new technology and with new healthcare policies, which will give component companies a leg up over competitors.

Definitely for ITT, it is a focus market and we will continue to invest.

Christine Van De Graff: I agree as well that medical will continue to be an area of growth; not a fast and dynamic growth, but a steady, slow growth, especially considering that healthcare is a topic of deep interest, not only in North America but worldwide. And so, as long as we have people to take care of there will always be new and innovative ways to take care of them.

Steve Kennelly: But the growth, I think, is not only going to be in the size of the revenue from this market space, but also in the diversity of devices that we see coming out. I expect to see a continued synergy between the innovations that are brought to medical device developers by component suppliers.

At the same time, those OEMs—the device designers—are expected to come to us with new requirements that will create opportunities for the creation of products that wind up being used in other places, as well. So, there is kind of a circle that goes on, where our innovation is fueling theirs and theirs is fueling ours.

Ralph Weber: In the area of bio research I think we’re on the cusp of a great deal of understanding and growth that will also feed medical research, and the medical instrumentation field as a result of these innovations. So, I am very optimistic and I think there are good things around the corner. ■