We just witnessed a symbolic event in the touchscreen market. Last week 3M Touch Systems, a wholly owned subsidiary of 3M Company, and Touch International, made a joint announcement that Touch International would acquire all manufacturing equipment assets located in 3M’s Vancouver, British Columbia, Canada production facility by September 1st, 2007. It’s tempting to characterize this as a David and Goliath story, but the fact that two strong competitors could get a deal like this put together is very positive for everyone involved.

Many in the industry were surprised when 3M announced plans last year to exit the resistive touchscreen business altogether. Resistive touchscreens are the most common touch technology employed in conjunction with LCDs for Point of Sale (POS) terminals, kiosks, control panels, and other similar applications. "Specialty" resistive touchscreens are similar to standard 4 & 5 wire products except they are customized to include membrane switches, graphic overlays, optical filters, and other enhancements. The 3M facility in Vancouver produces these complex touch/membrane switch panels and employs sophisticated automated equipment custom designed for this type of product.

The terms of that agreement also allow Touch International to hire some former 3M Touch employees and produce "similar" specialty resistive touchscreen products, making this essentially a takeover of the specialty sub-segment of the remaining 3M resistive business by Touch International. TI also gains access to the touchscreen designs owned by 3M allowing them to produce the same products on the same equipment, with many of the same employees. This must be welcome news to 3M’s remaining specialty resistive customers.

In fact, Touch International had already gained significant business from many of 3M’s mainstream resistive customers by providing drop-in replacements for the 3M Touch parts affected since the original end of life announcements.

So, on the surface it was not that much of a surprise to see the announcement. However, behind the scenes there is a lot of context involved. The touchscreen market is a highly competitive space, with companies closely guarding their recipes and competing fiercely with each other in all categories including price and performance. The two overall largest North American suppliers are both owned by diversified public companies. 3M Touch Systems was formed by acquisitions of both MicroTouch Systems and Dynapro. MicroTouch itself was a former public company and had previously acquired other touch companies including Texas based Touch Technology, a specialty resistive supplier, in 1995. Elo TouchSystems was founded in 1971 and evolved to eventually be owned by Raychem and now Tyco Electronics Corporation. Elo is believed to be the largest North American supplier of touchscreens overall (actual sales numbers are also closely guarded secrets).

Touch International by contrast is still a privately held independent company. Founded in 2002, TI began developing their own portfolio of touchscreen products and was clearly becoming an annoying upstart competitor to 3M’s touch business. At the time however, some people had their doubts. Although TI was led by numerous touch industry veterans, some of whom were former MicroTouch and 3M employees, they were up against extremely well funded North American competitors and Asian suppliers with very low operating costs.

But the folks at TI have apparently learned their lessons well by years of observing and working in the industry. Without the resources of a larger company, TI has used a growth strategy including both organic and acquisition components, and capitalized on some of the shortcomings of the other entrenched suppliers such as long lead times for product delivery, lack of mechanical and electrical standardization, and pricing - and it has been working. By 2005 TI was a significant supplier in the North American marketplace and a formidable competitor.

Of course, 3M’s announcement about exiting the resistive market could not have come at a better time to fuel further growth of TI’s business. Their Austin facility has grown to more than 200 employees, with another 800 employed at overseas factories. The Vancouver site will likely add about 50 more. If things play out per the announcement, TI will become the second largest North American based supplier of resistive touchscreens and gains an estimated 35% share worldwide in the specialty resistive sub-segment.

Meanwhile, 3M Touch Systems can now focus on their leading edge and core capacitive technologies where they continue to lead, while Touch International gains additional market share and valuable production capacity. The integrators and customers also benefit from an industry maturing that brings better competition among suppliers, improved product quality, and overall reductions in pricing making touchscreens more system friendly than ever before. In other words, a win-win deal for all.

NOTE: Due to the holiday tomorrow, July 4th, there will be no Display Daily article.