A Touching Story at CES

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Thanks in part to the touch-screen trend, Cypress' PSoC division has grown faster than any other in the company, having shipped more than 250 million PSoC chips as of October.

Bye-Bye Buttons

STMicroelectronics (STM) has also seen growing demand for its capacitive sensors, which enable such features as touch-screen volume controls and power switches. "We are seeing the demand increase," says Bill Raasch, STMicroelectronics' vice-president of market development. "There is a big push, particularly this year, for 2008 notebooks having this kind of technology and implementing them in LCD displays."

Indeed, handsets are only responsible for a portion of the demand. The mobile-phone market accounts for between 20% and 25% of the market for the leading touch-screen devices, iSuppli says. That percentage could decrease as more devices opt for touch screens. Portable navigation devices, such as Garmin (GRMN) and TomTom in-car GPS units, and handheld gaming devices are two other main consumer markets for touch screens, says Colegrove. New lightweight notebooks, such as the tablet PC, are also fueling the demand for touch screens in the consumer device market, with many of the 2008 models likely to incorporate some form of touch sensitivity, Raasch says.

Demand for touch-sensitive gadgets is emanating from businesses as well as consumers. The technology is increasingly used in mall kiosks, screens for medical devices, screens in taxicabs, and even grocery store checkout counters. That's because the most advanced touch screens do not even need to be touched—they simply sense a finger's electrical charge, or capacitance, over a button and perform an action. As a result, they wear out less regularly than buttons. "It turns out that having buttons creates a lot of problems," Cypress' Taffe says.

Room to Grow

Many touch-screen technology providers are banking on continued high growth. In a recent filing, Balda called the touch-screen market its "most promising." The company estimates that the number of phones using touch sensors will rise from current levels of 3% and 4% of the handset market to roughly 20% of the market in the next three to four years. Balda also anticipates that most personal navigation devices will include touch-screen technology in the next few years.

Market crowding could tap the brakes on those growth rates, at least for some players. Competition has created a price war in the area of resistive touch screens, which require people to actually touch the screen. Resistive tech accounts for more than two-thirds of the industry, according to Colegrove. As a result, Colegrove expects that the market for this kind of touch screen will only grow about 3% a year, with many companies experiencing pressure on revenue. The market is already seeing consolidation. Touch International purchased 3M's resistive touch-screen line in June, 2007.

Still, with so many devices seeking to incorporate touch screens, there's plenty of opportunity, experts say. The companies that will do the best will carve out specialty niches, such as supplying multitouch displays for phones or inexpensive touch-screen controls for laptops. "There is still a lot of room to grow in the industry," says Colegrove. Buttons, it seems, won't be back in vogue any time soon.

Holahan is a writer for BusinessWeek.com in New York .