From EB magazine:
MANAGING
TEXAS
tornado
Tom Engibous is working furiously to make Texas Instruments the Intel of DSPs
------------------------------------------------------------------------
By By Robert Ristelhueber (photograph by Marc Berlow)
Dawn has barely broken over the north Texas prairie, and Tom EngIbous, president and chief executive of Texas Instruments Inc., is sitting ramrod straight at his desk, nervously tapping a business card on the
table as he awaits the next question. While dodging queries about his management style ("Hopefully, this story will focus on TI and not too much on me"), he does allow that his favorite pastime is water skiing. "I've got tendinitis in both elbows to prove it," he reveals.
------------------------------------------------------------------------
"TI will try to outspend their competition just like Intel does."
-- Will Strauss, Forward Concepts
Engibous is trying unsuccessfully to convince a visitor to his office that he's relaxed. "I'm very informal," he protests. "If you weren't coming in this morning, I wouldn't have had a tie on." What about the public's perception that he's tightly wound? "I chuckle when I read about that," he says. "Do I sound very intense right now?"
Well, as a matter of fact, he does.
His actions show his intensity, too. Since becoming TI's president last year, Engibous has hit this Dallas-based company like a twister. During those 18 months, he has sold off vast portions of the tradition-bound giant, while staking its future largely on a single technology: digital signal processing (DSP). He frets though, that he hasn't gone far enough: "It may still be too broad a focus."
------------------------------------------------------------------------
"It was DSP that brought this dinosaur back to life."
-- Tom Engibous
TI has always been a company that reveres its past, but it was collapsing under the weight of those traditions when Engibous'
predecessor, Jerry Junkins, assumed the reins in 1985. Proceeding gingerly, Junkins disposed of once-sacred assets like the oil
exploration business, eased TI toward a more market-based orientation and sought to humanize the rigid corporate culture.
Engibous, who took over after Junkins' unexpected May 1996 death, is in more of a hurry. "A tragedy like that causes you to spend time reflecting," he says. "We concluded that what we were doing was in the
right direction, but we thought we needed to do it at a much more rapid pace."
Everything must go!
Breathtaking is more like it. Under Engibous, TI has sold its huge defense business to Raytheon, peddled its notebook computer operation to Taiwan's Acer, unloaded its printer business to Genicom and also
disposed of its inspection equipment, chemical, telecommunications
systems, wireless equipment and software businesses. And the bloodletting may not be over. Speculation is rife that other businesses may be on the market soon.
------------------------------------------------------------------------
TI expects that half the nearly 90 million digital cellular phones built this year will contain one of its DSPs Such action has made a deep impression on TIers, many of whom revered Junkins. "Jerry was incomparable," notes Vladi Catto, the company's chief economist and a 27-year TI veteran, "but Tom is very decisive."
Engibous must undo the legacy of years of stagnation in the 1980s, when TI slipped from being the world's largest semiconductor producer to an also-ran. "When someone asks you who the premier four or five
electronics companies are, TI's not on that list," he concedes. The company must boost its margins from 14% currently to near 20%, and must grow annual revenue by over 20% to achieve top-tier status, he insists.
Moving up through the ranks
Engibous differs from all of TI's five previous presidents in that he has spent his entire 21-year career in the company's semiconductor operations. Although he began as a product engineer in one of the
old-line segments, linear circuits, he quickly caught the attention of his bosses. "As soon as he became visible to management, it was clear he'd run the group some day," says longtime executive Kevin McGarity, who currently is senior vice president of worldwide semiconductor marketing.
------------------------------------------------------------------------
Just over half of TI's semiconductor revenue still comes from non-DSP
products, which creates a disconnect with the core strategy and could risk alienating some employees "One thing you noticed was his focus, the ability to take a very complicated concept and boil it down into a chart with three bullets on it," says McGarity. "He has that combination of technological insight and people skills."
"He was as good a manager as any I had working for me," recalls former
TI semiconductor President Walden C. Rhines, now CEO of Mentor Graphics Corp., Wilsonville, OR. "He's firm and decisive, but also very likeable. He was able to take tough decisions without people getting angry with him."
That last trait is now being tested, as some employees of discarded
operations have adopted a nickname for their former chief: Tom EndOfUs.
Even more radical than the divestiture of non-semiconductor assets was
his decision to transition TI from a broad-based chip supermarket into a digital signal processor-centric house. His business role model is
clear: "When somebody says DSP, I want them to think of TI, just like they think of Intel when they say microprocessors."
DSP chips, which convert analog signals into digital form in real time, are popping up in applications like modems, cellular phones and hard disk drives. With more end equipment about to go digital, Engibous compares the DSP opportunity to the birth of the integrated circuit in 1958 -- a TI invention, he hastens to add.
"A DSP is not in a single-end [product] like a PC," he says. "They go
into everything from PC peripherals to telephones to TV sets to Internet access devices. Name a market -- computers, communications, entertainment --- it spans everything."
How focused on DSPs does TI intend to be? "If we were a $10-billion
company and 100% of it was DSP, I don't think anyone would feel bad," he says. "After all," Engibous told the Robertson Stephens Technology
Conference earlier this year, "it was DSP that brought this dinosaur back to life."
"They are betting the farm, aren't they?" notes Will Strauss, who heads the market research firm Forward Concepts in Tempe, AZ. But he thinks it's a smart gamble: The $3-billion DSP market is ex pected to grow 30% to 40% a year through 2001, and TI currently leads with a 45% share, according to Strauss (see "DSP battleground," at right).
"There are tremendous opportunities opening up as DSPs become cheaper and faster," says Strauss. All disk drives with 2 gigabytes or more capacity will require DSP, and TI recently introduced a line of DSPs aimed at controlling the billions of motors installed around the world.
When the digital television and radio markets finally emerge, the company plans to have a DSP solution ready for those markets too, he
says.
TI already has a solid customer base in applications ranging from anti-lock brakes to fax machines. It supplies modem chipsets to U.S. Robotics, and DSPs to cell-phone makers Ericsson and Nokia. TI expects that half the nearly 90 million digital cellular phones built this year will contain a TI DSP.
Strauss thinks that the analogy with Santa Clara-based Intel Corp. is apt: "They will try to outspend their competition just like Intel does. TI has some massive development programs going on."
TI is investing lavishly to ensure an ever-widening base of developers
accustomed to designing with TI's DSP technology. The company this year created a $100-million venture capital fund to finance start-ups
creating new applications for DSP, and has already invested in eight companies. It pumped $25 million into a university research fund, and last year gave Rice University in Houston a $7-million donation to finance DSP research.
The company figures it needs to generate 1,200 additional engineers each year who are familiar with its DSP technology. "It's critical to
introduce new programmers at the college level, and to retrain existing engineers in the marketplace," says Richard Templeton, who was elevated to Semiconductor Group president last year. "It's a very explicit part of our strategy."
But who wins the war?
Engibous claims that 70% of the world's 30,000 DSP software engineers work on TI architectures with TI development tools. Like Intel in the PC market, the company whose products attract the programming resources will win the battle, he says.
"The issue of programmers is real and important, but it's not as
defining an issue as in the PC market," disputes Bob Conrad, director of the DSP product line at Analog Devices Inc., Norwood, MA. "Code size is in the thousands of bytes of code, not megabytes going to gigabytes, so it isn't the same barrier to port somewhere else."
He compares the DSP business to the microcontroller market, where no
single company holds a majority share. "There is not a need or opportunity to standardize around one processor. It's much more fragmented. Also, customers feel constrained, if not held hostage," when an Intel-like dominance emerges, Conrad says.
The fragmentation theory is shared by another DSP competitor. "TI says they are trying to bring DSPs to every application, but it's very difficult to develop such broad applications expertise," says Dan DiLeo, vice president of wireless and multimedia products at Lucent
Technologies, Allentown, PA. "The greatest opportunities for DSP solutions are in communications, which plays to our hardware and software strengths in that market."
It's one thing to dominate a market with a common platform, and quite another to take over a market like communications, he says. "There are five different cellular standards in the world, and only one operating
system in PCs," DiLeo says. "TI is also not the technology leader the way Intel is," he claims, arguing that Lucent's newest DSP core is 30% cheaper than TI's, and consumes one-fifth the power.
Lucent's competitive position is strong: it already supplies DSP modems to top-tier PC vendors such as IBM, Compaq, Hewlett-Packard and Toshiba, and is designed into cell phones at the five leading manufacturers, DiLeo says.
But although he gets an earful from Analog, Lucent and Motorola, Engibous contends that in the emerging system-on-a-chip era, TI will have the edge because it has the DSP core technology and the ASIC (application-specific integrated circuit) capability to integrate it with other critical functions. Process technology and systems-level expertise are other advantages held by the company, he adds.
For all the clamor about DSPs, however, the fact remains that just over half of TI's semiconductor revenue still comes from other products, many of them commodity logic and memory parts. That creates a disconnect with the core strategy, and could risk alienating employees in older segments.
A former TI manager who asked not to be identified contends that, "Some people don't feel part of the mainstream. Microcontrollers are a $300 million or larger operation, but those people get no attention. Linear brings in over $2 billion in revenue, and for every DSP sold there are a couple of [analog-to-digital] converters sold around it."
Engibous claims the whole company is behind the program. "The reaction has been outstanding. The enthusiasm and passion for winning is at an all-time high in my 21 years here. There is no fingerpointing." He claims to spend a large part of his time preaching the strategy to the troops. "I spoke in person to 1,000 TIers this week, and that's a typical week."
TEXAS INSTRUMENTS AT-A-GLANCE
CEO and president: Thomas Engibous
No. of employees: 44,500
Headquarters: Dallas, TX
ÿSept. 30, 1997
(9 months)Sept. 30, 1996
(9 months)Net Revenue:$6,507$7,472Net Income:$2,090$92ROA:7.3%2.8%ROE:
15.1%6.0%Note: Revenue and income are in millions of dollars. Figures
are for continuing operations. Return on assets and return on equity
excludes all charges and special items.
SOURCE: TEXAS INSTRUMENTS AND ELECTRONIC BUSINESS Besides, many of those standard products are solid performers, adds Templeton. "A commodity business isn't bad when you have the number one position in market share and cost," he says. "Would we start a commodity business today? We probably wouldn't, but if you have one that's very well run and positioned, and is an excellent financial contributor to the company, there's no need to change."
One commodity business TI definitely wants to overhaul, though, is dynamic random access memory (DRAM). Even though the company builds most of its DRAMs in joint ventures, it's still been badly burned by the sharp price erosion of the past two years. As recently as the last
quarter, TI blamed DRAMs for hampering total revenue.
"We've got some things we need to change in the joint venture agreements," Engibous says. "We need to put our technology at the leading edge rather than in the middle of the pack. And we have to fix some of the fine print, so that if the price of DRAMs is in a free fall we won't have that kind of pain again." Those changes would allow TI to buy DRAMs from the joint ventures at prices that better reflect market values, he adds.
Despite the travails, Engibous defends TI's participation in that market. "DRAMs are a commodity business, but the business model we have is unique because as we grow our capacity, it will be financed by the joint ventures, not by TI. We have a fixed cost we call R&D." (TI declined to disclose the amount of R&D it spends on DRAMs.)
"So here we have a situation where TI in vests no money, essentially, and gets a fairly high rate of return over the [complete] cycle. Unfortunately, we're still at the bottom of the cycle, but compared to the last couple of cycles where we were losing $300 million or $400 million a year, this loss is minuscule."
Is the company looking to dump its commitment to DRAMs? "We always look at our portfolio in terms of strengthening what we have, or further focus," Engibous responds. "I think right now we're pretty pleased with the prospects. What we might or might not do, obviously that fits into the category that we don't comment on."
But some believe the company is searching for a way out of commodity
memories. "They're somewhat constrained by the obligations of the DRAM business," says Drew Peck, a security analyst with Cowen & Co. in Boston. "I think the handwriting is on the wall when they hold an analysts meeting and spend six hours talking about other businesses and never mention DRAM." Extricating itself from the web of joint ventures around the world, however, would likely prove a delicate task, Peck adds. TI has four joint ventures producing DRAMs based in Japan, Taiwan, Singapore and Texas.
Will TI discard the remaining non-semiconductor operations, such as calculators, and materials and controls, which still account for about 20% of revenue? "We want to be primarily focused on DSP solutions, but that leaves room for other businesses," Engibous says. "Both of those businesses have high market shares and consistent earnings, and the opportunity for growth is exceptional." There is particular potential for expansion in Asia, where motor protectors will be needed in cars and consumer appliances in emerging markets such as China, he adds.
Still, Engibous made similar statements last year about operations that were subsequently sold off, and his quest for focus has probably made expendable any business outside the DSP orbit.
Another likely candidate for divestiture is the Digital Light Processing (DLP) project. Spawned by an esoteric technology once used in the defense business, DLP utilizes thousands of tiny mirrors on a silicon chip to project images on a screen. TI has invested hundreds of millions of dollars in the project in hopes of tapping a big home entertainment market, but has only found a spreading pool of red ink. Annual sales are just under $100 million, and the company will not disclose losses, although Engibous says they're narrowing.
Engibous already has shut down the portion of DLP that was aimed at
designing a printer. The reason: "We have no interest in becoming a printer company [that] provides one midrange product." In regards to the overall DLP operation, "It remains to be seen how big we can make that highly differentiated business."
Financial analysts are generally de lighted by the changes brought by Engibous. "I think the strategy is excellent, which is reflected in the fact that their stock price has more than doubled," says Cowen & Co's Peck. He adds, though, that "the easy part is selling off those businesses that are not strategic. It's a bigger challenge finding
businesses to buy that are complementary."
Last month, TI announced plans to acquire Amati Com munications Corp., a leader in digital modem technology, for $395 million in cash. In June 1996, it paid $575 million for Silicon Sys tems Inc., the leading
producer of disk-drive read channel circuits. TI also bought Tartan Inc., in May 1996, and Intersect Technologies Inc., last March, for
undisclosed amounts. Engibous says TI will make other strategic
acquisitions as needed.
Some observers contend that TI will be challenged in coming years by a
dwindling revenue stream from patent royalties. However, the company last year signed a 10-year DRAM licensing pact with Samsung Electronics Co. Ltd., Korea, which it estimates will bring in $1 billion. "That reflects the strength of our patent portfolio," says Templeton.
No more fear
Engibous is continuing Junkins' quest to dispel the climate of fear that permeated TI for so long. In an incident that has achieved legendary status inside the company, former Chairman Mark Shepard once stormed into the office of a public relations manager and ripped his telephone out of the wall as punishment for giving an unauthorized interview to a magazine. Another TI worker had his calculator thrown at him by Shepard during a meeting. His offense? It was not a TI calculator.
Workers no longer dread speaking freely inside and outside the company, and Engibous prides himself on making TI a friendlier place in which to work. "We're changing every single Opeople' program, from retirement plans to time off," he says. In press releases that were once unimaginable from TI, the company notes it has been cited as a
progressive employer by Working Mother Magazine and Hispanic Magazine,
and touts its minority employment record.
Reducing the fear of failure is another priority. "I think we come from a culture in the last couple of decades of playing more defense than offense," Engibous acknowledges. "It's okay to be wrong. Intelligent risk is good and a certain percentage of the time it will not turn out in your favor, but it's important we don't stamp those types of decisions as failures."
He says he encourages managers to kill their own projects if they're judged to be heading down dead ends. "Those people are immediately put on another dynam ic program and not left to be stamped with a scarlet letter." After Engibous terminated the X86 microprocessor group early this year, many of its personnel were shifted to DSP work, he notes.
"I give TIers a great deal of credit for their ability to lead change and not just react to it," Engibous says. "We're doing better there. We're not like a start-up in Silicon Valley, but we can certainly be very agile and innovative. The legacy of innovation at TI is very well known by our employees."
Returning TI to the top tier of electronics companies is his ultimate quest. "That would have a lot of ramifications for us. When some money manager says he wants 15% of his portfolio in technology, we'd make he cut, and when a top engineering student is graduating from a university, TI would be one of his first three choices," he adds.
Engibous recites some of the markets where TI lost its leadership position: microprocessors, gate arrays, microcontrollers. He adds firmly, "We're not going to let that happen in DSPs."
------------------------------------------------------------------------
"I knew I'd never be president"
When Jerry Junkins died from heart failure during a business trip to
Spain last year, it was William "Pat" Weber who spoke the comforting words to Texas Instruments' grieving employees. A 34-year company veteran, vice chairman and longtime Junkins associate, Weber was quickly named acting CEO and was widely expected to be handed the reins permanently by TI's board, of which he was a member.
Weber today acknowledges that he wanted the CEO's job, but says he had already resigned himself several years earlier to playing a secondary role at the company. "I've known since the early O90s that I would never be president," he says, explaining that since he was nearly the same age as Junkins, he had assumed the two would likely retire around the same time.
While some observers contend that Weber was passed up for being too closely identified with the company's old guard, and thus unlikely to implement drastic changes, others point out that Weber had carried out reforms in the semiconductor group, including the breaking up of entrenched product group fiefdoms, at the behest of Junkins.
It was age that played a key role in Tom Engibous' selection as president, Weber says. "I'm 57, and the board did not want a CEO to only run eight or 10 years. They wanted him to start something and finish something."
TI Chairman James Adams confirms that "obviously age played a factor in that process. We very much needed to look for a long-term leader." After a three-week search, "it became very apparent the person to be that leader was Tom Engibous," who is 13 years Weber's junior.
Weber, Engibous and Adams today form the office of the chairman and chief executive, with Weber focusing on key customers, international activities and shareholder relationships. The circumstances of Engibous' ascension "never created any awkwardness," Weber insists.
"We work together very well," adds Engibous. "Pat does a great job."
"I kid him about this, but I raised Tom," Weber says. "When I ran semiconductors, we moved him up very rapidly, so I credit myself with at least having the foresight to recognize potential."
Weber is an unwavering supporter of Engibous, says Adams. "He's that kind of executive. Around here we say that Pat has TI tattooed on his rear." >>>> |
