IM this article to a friend!

November 22, 2002

Minnesota no longer hearing-aid mecca

From: Twin Cities Business Journal, MN
Nov. 22, 2002

Sam Black Staff Reporter

There were once two centers of the hearing aid manufacturers' world — Minnesota and Denmark. Today, the balance has shifted almost entirely to Copenhagen, leaving the Twin Cities just an outpost in the $2 billion wholesale hearing-aid industry.

Minnesota still has enough mass to remain important to the business, particularly considering that 3,200-employee Starkey Laboratories Inc. is based in Eden Prairie, but consolidation has changed the local market drastically.

"This area used to be called the hearing-aid capital of the world," said Jerry Ruzicka, president of Starkey. "Now there are only skeletons of [some] companies."

Starkey, founded in 1967 by Bill Austin, is one of the last remaining independent American-owned hearing-aid manufacturers. It has about 900 Twin Cities employees and is expecting 2002 revenue to come in around $390 million, compared to about $330 million last year.

It's not surprising that Starkey is still active in the Twin Cities since it was the firm that helped establish the state as a hub in the 1970s and 1980s, said Gail Linn, director of audiology, industry and private practice at the American Speech and Audiologists, an industry trade group in Rockville, Md.

Starkey put itself on the map — and doubled sales — in 1983 when President Ronald Reagan was seen wearing one of its small in-the-ear hearing aids. Celebrities and politicians still seek out Austin, now chairman and owner, to get Starkey products.

Sold, piece by piece

Minnesota lost ground to the Europeans when the hearing-aid industry consolidated in the 1990s, said Carsten Trades, president of GN ReSound, the 350-employee Bloomington subsidiary of GN Great Nordic, of Copenhagen.

The number of major manufacturers across the world has dropped from 25 to 30 in 1990 to six companies today, he said.

The changing landscape includes:

* The exit from the business by Maplewood-based 3M Co., which sold its operation to GN ReSound in the mid-1990s.

* The sale this year by Bloomington-based Telex Communications Inc. of its Rochester, Minn., hearing aid business. The division was split between Phonak Group of Staffa, Switzerland, and Starkey.

* Two local companies, Lori Medical Laboratories and Argosy Electronics Inc., are now owned by the Switzerland-based Phonak Group; its 175 employees make hearing aids in Plymouth.

* Dahlberg Inc., known for its Miracle-Ear products, was split between Amplifon, a Milan, Italy-based hearing-aid distributor, and Munich, Germany-based Siemens. The Plymouth-based units still have about 450 employees.

Digital rules the world

European companies took control of the market because they focused on digital technology while American companies were reducing the size of their analog devices, Trades said. The digital technology proved to be more important.

Digital is now the fastest-growing segment, increasing from nothing in 1997 to about $850 million in 2001 sales.

The worldwide market for hearing aids today is down 3 to 5 percent in 2002, but the fundamentals are positive going forward, said Starkey's Ruzicka. Technology is improving dramatically as the baby-boom generation begins to require hearing aids, he said.

Digital devices, which range in price from $500 to $3,000 per ear depending on features, can be programmed to adjust to particular environments. With the help of tiny microphones, they can detect sound coming from different directions and adjust to mitigate background noise.

Starkey developed its own digital line, which already makes up about 70 percent of sales. Its analog devices are sold mostly to price-conscious customers.

But the price of digital is coming down, Ruzicka said. "The approach we've taken now means that anyone who walks in the door that needs a hearing aid is a candidate for a Starkey digital aid."

Counting on a boomer boon

By 2007, when the full impact of baby boomers will hit the industry, the conversion to digital should be complete, said Peter Van Nest, president of Bernafon Inc., a 100-employee subsidiary of William Demant Holding of Copenhagen.

Bernafon entered the Twin Cities market about seven years ago when it purchased the Eden Prairie-based hearing aid manufacturer Maico Hearing Instruments, which traces its roots to the 1930s.

Van Nest said he thinks the major consolidation in the industry is done. And he doesn't believe the international influence is negative. The mergers give small companies better access to deeper pockets and new technologies, he said.

© 2002 American City Business Journals Inc.