The high-tech market may be struggling this year, but there is one technology making lemonade out of lemons. In the world of rechargeable batteries, lithium ion chemistry makers are taking advantage of slow sales to focus on gaining market share over older nickel-based chemistries by selling new technologies at reduced prices.

It's no secret that 2001 was a slow-growth year for the battery market in general. Frost & Sullivan (F&S) battery industry analyst Sara Bradford says 2000 saw 27% growth in the rechargeable market while 2001 saw a scant 2%-3% growth. But within that slow economy many OEMs have begun to move their designs to lithium-based batteries, putting nickel-based technologies out to pasture. F&S says that in 2002, lithium ion technologies will power 81.5% of the total mobile information technology device market, with lithium polymers accounting for another 11.5%. That leaves a mere 6.3% of the market for nickel metal hydride (NiMH) batteries and only 0.6% for nickel cadmium (NiCAD). NiMH still holds a 27% share of the mobile telecommunications market where lithium ion's share is 60.4%.

Market researcher The Freedonia Group predicts strong growth for the lithium battery market. According to a recent report, Freedonia expects demand for lithium ion and polymer to double by 2005 with sales growing to $2.3 billion.

Technical advantages of lithium technologies leave little dispute as to where the industry is headed. Lithium batteries provide longer run times and can be recharged up to 2,000 times as opposed to the few hundred charges that NiMH can withstand. The performance differences are evident in the number of battery makers like Maxell that have abandoned their nickel-based product lines to focus on lithium chemistries.

Battery giant Sony is so bullish on the lithium technologies that it no longer sells nickel chemistries. Sage Nishimura, marketing manager for Sony Electronics' energy division, says Sony dropped its price for lithium ion in 2001 and into 2002 to grab market share from nickel metal hydride during the slow sales period.

"I can't give you exact figures, but I can say that what lithium ion and lithium polymer are enjoying today was taken from nickel metal hydride," says Nishimura. "So, in spite of the growth in quantities, the price drop means that our revenues from these products has not grown so much."

Increased adoption of lithium polymer helped level out Sony's numbers in 2001, as high-end OEMs built the more flexible polymer into some of its cell phones and personal digital assistants (PDAs). Nishimura says even the high-end polymer dropped nearly 40% in price over the past year.

Toshiba also abandoned its nickel operations, selling them to Sanyo in 2001 to focus solely on lithium ion and polymer technologies. Ritch Russ, director of business development at Toshiba America Electronic Components, says NiMH dropped off the table at the end of 2001 and early in 2002, due in large part to lithium ion's pricing decline, making it competitive with NiMH.

"With the much smaller energy density of NiMH, you near the same price point," says Russ. "So lithium ion has captured a great deal of market from NIMH, even though both are down this year."

Sanyo apparently doesn't feel that lithium polymer is the technology of the future and does not offer it in its current product lineup. Senior Vice President Joe Carcone says, "The polymer market has not taken off yet because the price premium does not justify a performance improvement over lithium ion. The flexibility offered by polymer has not been an issue." Carcone also says the greater number of competitors selling lithium ion has driven the price down to compete with NiMH while polymer has not approached that level yet.

Toshiba's Russ says 2001 was not the year it was supposed to be for high-end lithium polymer adoption. Sluggish sales and investment cutbacks in 2001 meant the high-end chemistry would have to wait for its coming out party. "If you looked at forecasts from the previous year, you saw this graph steep up to the right for polymers and advanced lithium. With the downturn, people started pushing projects off, so instead of seeing that growth, people were concerned with the exact price point for certain marketplaces. We see much slower growth for advanced lithium batteries this year than was forecast."

While the laptop market was less affected, slower growth of PDAs and cell phones in the past year has slowed the progression for lithium technologies somewhat. However, the technology is still gaining market share over its cousin chemistries. Bradford says the equation is simple. With lithium-based technologies you pay roughly double what you would for nickel technologies and get roughly twice the performance and run-time you would from nickel.

Frost & Sullivan's Bradford says most battery manufacturers are expecting 2002 to be a flat year across the board and are targeting mid-2003 for a rebound. She adds that the growth of third-generation (3G) telecommunications infrastructure will spur growth in cell phones and the battery market should follow suit. To date, however, the 3G build-out has been slower than expected limiting demand for advanced technologies.

While many of major players in the battery market are abandoning the lower market segments, several Chinese battery makers are quickly gaining share at the low end with low-cost lithium and nickel technologies. To keep costs as low as possible, some of the Chinese players manufacture the batteries by hand instead of using machines. The presence of such players will continue to place pricing pressure on the market by creating a new low-end segment that simply didn't exist before.

"Instead of using automated machines, they went out and handmade a product for a lower cost," says Nishimura. "They weren't after quality, but were looking to create a new segment in the market from a pricing perspective. From a marketing perspective, I think they earned a lot of credit for creating a new market instead of just improving on what already existed. This is changing the mindset. You don't need high-tech everything. You can compromise on some points depending on applications."

Carcone says the cordless phone market, which was once an attractive market for battery suppliers like Sanyo, has gone almost entirely to Chinese battery suppliers today to keep costs low. "It is still a very big market, but we don't compete in it," Carcone says.

Going forward, most market watchers see a place for both lithium ion and lithium polymer technologies, depending on the level of technology required for an application, with lithium ion as the base technology and polymer as the high-end option for applications that need more design flexibility.