Market for Digital Thermometers Heating Up

For many years the dream of every manufacturing company was "to sell a tire valve to every Chinese who rode a bicycle." In the past two weeks it seems that this dream is coming true for System Application of Advanced Technology (SAAT), based in Petah Tikva, although instead of selling bicycle valves, SAAT sells thermometers.

The spreading SARS (severe acute respiratory syndrome) epidemic in the Far East has led to tenfold growth in the company's orders for digital ear and forehead thermometers. "Anyone ordering a thermometer today will receive it only after August," says general manager Jonathan Gerlitz from Shanghai. "We've been flooded with orders."

"A few weeks ago we approached the Chinese authorities for a permit to sell our forehead thermometer," says SAAT marketing vice president Lior Ben Ezra. "Then suddenly, about 10 days ago, with no advance warning, my e-mail box was bursting with orders from Chinese companies and from the Chinese government."

Ben Ezra notes that the highest demand is for the company's flagship product, ThermoTek, for measuring body temperature via the forehead. Thermometer sales are seasonal and are affected by periodic outbreaks of influenza. The current wave of orders caught SAAT at a time when thermometer production lines are practically at a standstill.

"Within 24 hours we had to organize a production line that would operate at maximum output," says Gerlitz in a telephone interview from Shanghai. "In the whole of 2002 we sold 360,000 units, and within a week we received orders for 250,000 units - and everyone wants delivery tomorrow."

SAAT was founded in 1987 by Gerlitz and Dan Moran. Gerlitz has a bachelor's degree in chemistry and a master's in physics and chemistry, specializing in electro-optics. He worked for Israel Aircraft Industries and for Elbit, and when he left there and decided to develop products for the consumer market, he took an interest in digital thermometers. In the early 1990s these were used in hospitals only, and cost $400-800 each. In 1993-1995 SAAT launched digital ear thermometers with a price tag of just $99. ThermoScan, an American company, launched a similar product around the same time.

A few years later ThermoScan was acquired by Gillette, in a deal worth over $100 million, and its thermometer operations were transferred to its subsidiary, Braun, a company that is known in Israel as a manufacturer of digital thermometers. In the mid-1990s Braun filed a suit in the United States against SAAT, claiming that SAAT had violated Braun's thermometer patents.

"We have five patents in this field, and Braun knew that," says Ben Ezra. "On the other hand, Braun's executives also knew that in the U.S., unlike in Israel, it is impossible to demand court costs from the losing side, unless the winning side can prove that the suit was filed maliciously."

The resulting legal battle lasted three and a half years and cost SAAT $3.5 million. Toward the end of the case, SAAT launched a new thermometer and Braun confirmed that it did not violate any patents. The file was closed after a compromise, but SAAT was saddled with heavy debts.

In May 199, following pressure from the banks, SAAT applied to the court for protection against creditors. In February 2000 the banks signed a debt repayment agreement that waived half the debt, but still left SAAT owing them $4 million. SAAT fired over 180 of its 200 employees, transferred its production line to China and left just 17 employees in Petah Tikva, most of them engineers who are developing the company's future products.

At the beginning of 2000 SAAT had almost no customers, most of them having switched to the company's competitors. Nevertheless, SAAT finished the year with sales of 240,000 units. In 2001 this figure increased to 310,000 units, and in 2002, to 360,000 units. "At the current rate we will finish 2003 with sales of over 500,000 units," says Gerlitz.

Mass temperature measurements

SAAT's thermometers are currently sold in 12 countries under local brand names. "We have no money to invest in our own label," says Ben Ezra. When there is no strong local label, SAAT sells its thermometers under the ThermoTek name. Israel is actually not on the list of countries in which the device is sold. "Israeli chain stores demand four months credit and high profits, which forces us to raise our prices," says Ben Ezra. Even so, ThermoTek thermometers will soon be available at Shell-Pharm stores for NIS 249-299.

Gerlitz told Haaretz that it costs about $7 to manufacture each thermometer and in China they are sold for $13-$14. "Our profit margins are not particularly high," he claims.

The ThermoTek thermometer uses infrared technology to measure the temperature on the forehead and temple. After about 5 seconds of scanning the temple and forehead area, the device beeps and displays the temperature on a digital display window. The device's drawback is that it has to be in the room with the patient for at least 15 minutes prior to the measurement, as the room temperature affects the outcome of the measurement.

"Every body emits infrared rays. The device absorbs the rays and coverts them into body temperature," explains Ben Ezra, noting that the digital thermometer market is considered problematic due to the unreliable image that such devices gained over the years, particularly digital ear thermometers.

To prove the reliability of SAAT's thermometer, he pulls out the report from a study conducted in Sweden. The study tested eight different digital thermometers for measuring body temperature in the mouth or ear, and ThermoTek, for measuring the temperature via the forehead. SAAT's thermometer was the only one that earned all six points possible in the test.

The fact that the device is manufactured in China caused the company to be inundated with orders. "New regulations have been issued in China requiring that every person's temperature be measured upon his arrival at work. Children are checked as they arrive at school and people are checked in public places," explains Gerlitz. "Now there is a tremendous demand for thermometers. In principle, we are capable of supplying more thermometers, but our component suppliers are not keeping up with demand because everyone is now manufacturing thermometers at maximum output levels."

Gerlitz says that the company has a few competitors for forehead thermometers, including a few companies in Taiwan. "Even though we have protected our inventions with patents, we know that within a year or 18 months the market will catch up with us because it is enough for a competing company to make one small change in its product for our patent not to cover it," he says.

"For this reason we are investing a lot in development. Our next product will make it possible to measure body temperature via the forehead without touching the body at all."

Encouraged by the company's success in China, SAAT is offering Israeli companies the use of its production line in China for the manufacture of other electro-optic products. "We have a lot of knowledge about what is going on in China," says Gerlitz. "We have a Hebrew-speaking factory in China and offices in Petah Tikva. This seems to me to be a combination that could help many Israeli companies."