Analog Devices Harnesses a Wii Hit

For more than a decade, Analog Devices(ADI) has supplied automakers with a special kind of chip that deploys airbags during crashes.

While these chips -- known as MEMS, or micro-electro-mechanical systems -- bring in respectable revenue, turn a profit and save lives, the business has existed as a little-known venture within the $2.6 billion chipmaker.

At least that was the case until Nintendo's(NTDOY) Wii gaming console hit the scene, bringing ADI's MEMS business to celebrity status inside and outside the company.

The runaway success of the Wii, which uses an ADI chip for its most popular feature, has turned ADI's MEMS business into one of the company's fastest growers, with sales up 23% sequentially in the most recent quarter, and sent management scrambling to find other consumer devices to use the chip.

The consumer MEMS opportunity is a much larger potential market than the company ever anticipated, says CEO Jerry Fishman. "It's a good intersection of very new markets developing and only a very few companies with the expertise," he says.

ADI's plan to conquer the consumer world with the MEMS chip means it must find a way to kick-start what is essentially a new market without derailing its own progress on profitability. The chipmaker says it is aggressively investing to capitalize on the opportunity, but the results in the coming months will demonstrate to what extent its MEMS business has really changed -- and how far MEMS can go in transforming the company.