Chipping Away
In a digital world, Texas Instruments finds profit in analog
Under former CEOs Jerry Junkins and Tom Engibous, now TI's chairman, Texas Instruments in the 1990s shed more than a dozen of what it considered old businesses, including defense products and oil-field services. The latter is where the company started in the 1930s. It also abandoned the PC market, including notebook computers, microprocessors, and memory chips. "We moved beyond the PC, because we saw the market moving beyond it," Templeton says. Still, TI went through painful times as the rest of the tech world thrived amid the 1990s Internet boom and its own fortunes sagged; it lost money while shrinking in size by more than a quarter, from sales of about $11.4 billion in 1995 to $8.5 billion three years later.
In doing so, the company remade itself to focus on what Engibous and Templeton saw as the future: wireless handsets, where it already had a major play in its digital signal processors. DSPs are integrated circuits with roots in the speech synthesizer that powered the Speak & Spell, a successful toy that TI started selling in the late 1970s-and that E.T. hacked to communicate with fellow extraterrestrials. A DSP takes digital streams, such as audio and video, and manipulates them, scrubbing them of background noise or squeezing them for quicker transmission. With money from its downsizing, TI bought numerous companies that reinforced its push into DSPs and, later, into analog. The transformation "not only took foresight; it also took nerve," says Ron Slaymaker, TI's head of investor relations.
The effort paid off by the late 1990s as cellphone sales skyrocketed, and the company dominated DSPs, with about half the market. That figure now exceeds 60 percent, but the rocket is beginning to show cracks: Some analysts worry that the cellphone market is nearing saturation and poised to slow down. "Then again, we were saying the same thing three years ago, and it hasn't happened yet," says Slaymaker. Still, there is at least a temporary dip underway, as more cellphone sales move overseas, where cheaper handsets are more popular; TIhas acknowledged that the dollar value of its sales may be soft for this quarter and maybe longer.
But Templeton argues that the company has positioned itself well for cellphones in emerging markets like India, China, and Latin America, particularly with a cheap, one-chip solution it calls the LoCosto. "Very sophisticated name, isn't it?" the CEO says with a smile. "But people aren't confused about its purpose."
More sophisticated is the product's integration of DSPs, for processing the digital sound streams, with analog chips that convert voices to and from digital. And that's at the heart of the company's push into analog, which TIsaw as a chance to leverage its dominance in DSPs. Analog and digital chips pair in all sorts of electronic devices, from cable modems to glucose monitors to a PC mouse. On many, TI can now offer to sell a manufacturer 80 or 90 percent of the silicon needed. "It gives us great ability to walk around the block," says Gregg Lowe, senior vice president over TI's analog business. He's not talking recreation but to walk potential sales around a block diagram-a graphical representation of the pieces to be assembled into an electronics product.
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