MEMS -- micro-electro-mechanical-systems -- are sensors built directly onto semiconductor chips, delivering data into devices for immediate processing. They have long carried a high "wow" factor in the nerd community, but have struggled to work themselves into wide-scale applications. That's quickly changing, though. Witness Analog Devices' (NYSE:ADI) largely overlooked announcement that it shipped its 200 millionth inertial MEMS.

You know that sensation on a roller coaster when your stomach feels like it's going into your throat? An inertial MEMS can actually quantify that phenomenon. For example, the automotive industry employs inertial MEMS to measure a car's rapidly changing levels of G-force and reactively allocate torque to its wheels to maintain control -- a safety feature coming soon to a vehicle near you.

In its April disclosure, Analog emphasized that half of those 200 million units were sold in the last two years -- pretty impressive growth, considering its first inertial MEMS was sold back in 1994. With such devices selling between $4 and $41, depending on the application, my take is that Analog could reap big profits as this rapidly growing product set finds more and more everyday applications.

From golf clubs to hard drives
Yes, my friends, these tiny machines-on-a-chip are exploding. In the past five years, Analog has experienced 20% annual revenue growth in its MEMS products. The automotive industry is driving most of this growth, using the sensors in airbag deployment, rollover protection, alarm systems, dynamic control systems, and navigation.

In addition, Analog's MEMS are finding their way into consumer products everywhere. SmartSwing golf clubs use Analog's MEMS to profile a golfer's swing. IBM's (NYSE:IBM) ThinkPad uses Analog's MEMS to help its hard drive brace for impact when dropped or struck. Nike (NYSE:NKE) is developing a smart shoe, while Riddell has helmets that analyze the force of impact absorbed by athletes, in hopes of reducing the risk of concussions. These are just a few of the uses discovered since Analog increased funding and hiring two years ago to boost its market application efforts.

Analog's MEMS portfolio primarily contains inertial MEMS; in that field, it's the world's largest supplier, with a 30% market share in 2004. The company competes with the likes of Bosch, FreescaleSemiconductor (NYSE:FSL), Denso, and ST Microelectronics in the overall MEMS market. The market for all varieties of the chips is projected to reach $9.6 billion in 2006, according to MEMS market expert Terrence Thompson at Chip Scale Review. Manufacturing MEMS is a difficult process that requires a lot of brainpower, which should ensure that the current manufacturers remain the sole beneficiaries for the near future. Furthermore, these complicated little chips often have products designed around them, which makes manufacturers more likely to stick with their current supplier than try to adapt to a new brand of chip.

Revenge of the nerds
Analog Devices tallied $130 million in annual revenues from MEMS in 2004, comprising 5% of the company's total sales. Analog boasts a diversified portfolio, with its single largest product only accounting for 2% of total revenues, while its largest customer represents only 3%. Analog's wide-ranging products include amplifiers, various components, switches, interfaces, converters, processors, sensors, broadband products, and wireless products.

MEMS, along with DSPs -- digital signal processors -- play an important role in Analog's revenue growth. DSPs serve as the translators between reality and the computer world of bits and bytes. Sounds, images, temperatures, and pressures are fed into DSPs, converted into computer language, and stored into memory. DSPs can then retrieve data from memory and convert it back into its real-world form. They provide the "brains" of many electronic products, including digital cameras.

In 2004, Analog's total revenues grew a robust 30% year over year. They were aided by growth in their DSP market share, from 30% in 1997 to 40% in 2005, which has been driven by Analog's dominance as the choice supplier for high-performance DSPs in consumer products. In addition to cameras, Analog's chips toil inside digital audio players, DVD players, and plasma-screen and HD televisions. DSPs account for roughly 21% of Analog's revenues; along with MEMS, they're management's primary strategic focus.

Analog shares have staged a small rally in recent months in the wake of positive news from Intel (NASDAQ:INTC). They now trade at $36.50, up almost $4 from April's lows. With a P/E of 29.5 against an industry average of 25.8, Analog is not exactly cheap. But few companies in its industry have an arsenal of products that can match MEMS' growth potential.

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Fool contributor Cliff Malings believes that profiting big from small things is a tall order. But the closer you look, the further you will see. Cliff does not own shares of any companies mentioned here. The Motley Fool has a disclosure policy.