Morningstar | Much of Sonova's Near Term Depends on Its Latest Launch of Marvel Platform
Sonova benefits from favorable trends, including an aging population, increasing noise pollution, fairly low penetration rates for hearing aids in the developed world, and virtually untapped patient populations in emerging markets. Its broad product offerings should allow the company to capitalize on these trends, while its strong brand and superior technological know-how should yield market share gains.Sonova controls about a fourth of the world's hearing aid market, roughly in line with its key competitor, William Demant. The two rivals are very similar in their approach to the market. Both tend to focus on the high end of the spectrum of device sophistication, and both flip their product portfolios fairly frequently and have strong sales and distribution networks, including notable presence in direct-to-consumer sales channels. These similar strategies have led to superior results, with each firm gradually increasing its presence in the hearing aid market. The growing combined market share of the two leaders is, to a significant degree, attributable to their success in differentiating their brands from the competition. We, however, note this differentiation is becoming less pronounced.However, we feel that the industry itself is undergoing a transformation, and one that is not too favorable for all the manufacturers. Costco's growing presence in the retail channel puts pressure on wholesalers, and is likely resulting in the independent channel ceding customers, particularly new and more cost-sensitive individuals. Products themselves are becoming more homogeneous, with actual differentiation not as pronounced as historically (although perception still strongly favors the top two makers). Finally, the downstream vertical integration carries risk. Sonova's acquisition of AudioNova, while clearly a response to its competitor's sizable expansion into the retail channel, has changed the operating model of the top players. A combined wholesale-retail model has its advantages, namely control over inventory, but carries lower margins and returns and creates yet another wedge between the firm and its independent audiologist clients.Sonova Holding is a hearing instrument manufacturer based in Switzerland. Co. specializes in the design, development, manufacture, and worldwide distribution of technologically advanced wireless and hearing systems for adults and children with hearing impairment. Co. offers a range of digital hearing instruments, along with high tech specialty products and complementary wireless communications systems. Co. comprises two hearing instrument divisions, Phonak and Unitron Hearing, as well as Phonak Communications, a developer of wireless communication devices for both hearing instrument and other applications.
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