Chipping Away
In a digital world, Texas Instruments finds profit in analog
That means efficient sales calls, with TI's large marketing group able to offer a broad catalog of products to any electronics maker. "They do a very good job of cross-selling," says Susie Inouye of Databeans, a company that tracks semiconductor sales. Selling DSPs alone would still be a good business, but in some ways they are what microprocessors were in the '80s and '90s. The digital chips are primarily rated for speed, like the megahertz race that finally petered out for PCs. "You can only go so fast and people still say, 'Wow,'" Inouye says.
Talent roundup. Analog chips, on the other hand, are more diverse, rated on a variety of specs, and used broadly, if for nothing else than controlling the power to gadgets. "I can guarantee you that every electronic device made-if it has a battery or plugs in-has at least one analog chip," says Templeton, the CEO. So through a series of major acquisitions from 1999 through 2001, TI assembled an organization of 3,000 workers, building on an analog group that already existed. One purchase, of Tucson, Ariz.-based Burr-Brown Corp., still ranks as the largest semiconductor merger ever at a cost of $7.6 billion. That combination added 1,500 employees, including cowboy-dressing Bill Klein, and their expertise in cutting-edge design, what the industry calls high-performance analog.
Marketed in ads that feature race cars and speed boats, high-performance chips bring big profits-with operating margins at an eye-popping 40 percent or better. Customers typically worry more about performance and reliability than they do about price, says Lowe, the analog chief. "They're not price elastic but specification elastic," he says. But analog is a woolly market. Many companies produce the chips, and nobody dominates. With its acquisitions, TI sells perhaps 14 percent of analog chips, and that's only a percentage point or two more than other companies. In the prized high-performance market, key competitors include Linear Technology, Maxim Integrated, and National Semiconductor, companies that do little but analog chips. The high-performance circuits are highly specialized, making it difficult to manage at a large company like TI, which has to produce about 500 new products a year to keep pace. The ability of specialized competitors to develop high-performance chips that outdo TI's is one danger for the chip giant. Another is in the creative and independent sensibilities of the designers.
Stories abound of analog idiosyncrasies. National Semiconductor guru Bob Pease, another graybeard, is known for heaving PCs off buildings in moments of digital pique. "We don't trust computers in designing analog chips," he says. "You have to rely on your instincts." Electricity entering one side of a chip might affect other circuits with interference, or generate heat that sends temperature changes flowing across the silicon in ways that can't be precisely predicted. Analog requires a touch that's developed over time, so much so that the chips are particularly susceptible to engineers openly, or secretly, signing their works like pieces of art.
Some of the eccentricities have faded over the years, says Gary Grandbois, a former analog designer and now a market analyst at iSuppli. But engineers still take pride in their creativity. "I'm a musician," says Steve Parks, almost coming out of his chair, having already displayed ample enthusiasm for his job as head of marketing for TI's analog business. Looking a bit like John Denver, Parks was once a chip designer and, before that, an aspiring Elton John or Billy Joel-a keyboardist. He keeps up with his music, which is typical of analog engineers, he says. Analog means waves, whose ever changing shades of gray differ from the certainty of digital, with its on-off, ones and zeroes. "Musicians know how to do improvisation," he says. "In analog, knowing how to solve a problem takes that kind of DNA."
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