Science & Technology: SEMICONDUCTORS
NOW, TI MEANS `TAKING INITIATIVE'
Sitting in a restricted Dallas research lab, Texas Instruments Inc. Vice-President Jack Harrod can't hide his glee as a no-name big-screen TV outshines the brand-name models on either side of it. Why so happy? The crystal-clear picture is courtesy of TI's patented digital mirror device (DMD)--a postage-stamp-size semiconductor covered with 400,000 mirrors that projects images far more efficiently and accurately than liquid crystals or cathode-ray tubes.
But the pretty picture tells only part of the story. After five years of research and development and more than $200 million, TI is determined to make its bet pay off. The company has hired optics scientists to make sure consumers will appreciate the sharper image. It has contracted with Asian TV screen makers to develop surfaces that can exploit DMD's higher resolution. And rather than sit around hoping TV makers take a look, TI has built prototypes of everything from portables to wall-size home theaters to grab their attention. "We're duplicating almost everything the TV maker would do," says Harrod. "But then, we're talking about changing the high-end display business forever."
Indeed, once-stodgy Texas Instruments is out to change the very nature of semiconductor marketing. With vast new markets such as TV set-top boxes and wireless PCs about to explode, analysts expect world chip sales to double, from $100 billion last year to $200 billion by 2000. TI isn't content to wait for manufacturers to come to it with chip orders. "Rather than just trying to understand where the world is going, we're trying to influence it as well," says Vice-Chairman William "Pat" Weber.
At first blush, this intense overhaul is hard to fathom. After all, TI is now one of the world's healthiest chipmakers. Its 1994 earnings jumped 49%--to $1.08 billion--on sales of $10.3 billion, up 21% from last year. Its stock recently hit an all-time high of $107. And while rivals are strapped for production capacity, TI has a network of cutting-edge chip factories financed, in part, by six joint-venture partners on three continents.
Now, Weber is attacking TI's weakest link: marketing. Famous for inventing--and then squandering--some of the most ingenious technologies in this century, including the original integrated circuit in 1958, TI has been left in the dust by rivals such as Intel, Hewlett-Packard, and Motorola. The solution, Weber says: to forge tighter links with key customers and do more industry spade work to create billion-dollar businesses for voice-activated phone systems, wireless notebook PCs, and a panoply of cellular-style equipment for tomorrow's electronic superhighway. "We want to be the company that makes this complex new digital world easy and useful," says Weber.
PIONEER. Bold visions, but can TI upstage such premier rivals as Intel, Motorola, and Canon, which have built electronic gold mines out of microprocessors, cellular phones, and PC printer engines? Certainly, TI has had successes. Almost singlehandedly, it pioneered the market for specialized sound and graphics chips known as digital signal processors. World sales of DSPs should grow from $2.6 billion in 1994 to $14.6 billion in 2000, predicts Forward Concepts Co. in Tempe, Ariz. But TI has had less luck building major businesses in software and portable computing.
Both are now linchpins in TI's strategic overhaul. Impatient with the company's puny 4% sliver of the U.S. notebook PC business, CEO Jerry R. Junkins handed the unit to longtime research director Pallab Chatterjee last fall. His mandate: to bring sales up to $1 billion while achieving 20% return on assets--or find a buyer for the unit.
Chatterjee quickly hired a team of marketing consultants and commissioned a four-month customer survey. It revealed that TI's products were too expensive and not well defined. But it also indicated vast new opportunities. Responding to the report, Chatterjee is pumping up marketing for its existing machines and adding new communications features to appeal to business road warriors. Later in the decade, Chatterjee intends to field entirely new portable gadgets, merging TI's strengths in chips, software, and communications.
Now, this effort to churn up new opportunities is spreading throughout the company. Most divisions will present new strategic plans this month, leading to an overall corporate blueprint by yearend. And while the company doesn't plan to attack many consumer markets alone, it will surely look to move beyond its role as straight silicon provider. Whether it's TV display systems, communications subsystems, or faster chips, TI's agenda is "to move up the value chain, where people will pay more for what we do," says Weber. In addition to richer margins, the migration will help TI cope with volatile markets.
Digital mirror technology is likely to be the first major testing ground for the new company credo. In late April, TI announced its first partners: three makers of pricey digital projectors for business presentations. And Britain's Rank Brimar Ltd. will soon unveil a DMD-based projector for auditoriums. By focusing first on these high-end niches, TI is readying a major assault on the huge PC-monitor and TV markets for 1997. "We've decided not to just parade new technology in front of the market anymore," says Harrod.
The question is, will TI's customers appreciate the company's new way of doing business? After all, Sony Corp. and other TV makers have pumped billions into display technologies of their own. And some of TI's strategic alliances may not be as solid as the company hopes. General Motors Corp. has developed a line of customizable microcontrollers with TI that could handle 80% of its processing needs. But the carmaker has yet to commit to production. Says R. Gary Daniels, a vice-president with Motorola, by far GM's largest processor provider: "Am I terrified of TI? The answer is no."
HAND-TAILORING. Still, TI does have an ace in the hole--DSPs. These single-minded racehorse chips, which can manipulate real-world sights and sounds far faster than general-purpose microprocessors such as Intel's Pentium, are already standard in cellular phones, hard disk drives, and PC sound cards--fast-growing markets all. After losing some momentum to rivals Motorola and AT&T Microelectronics in the early 1990s, says Forward Concepts President Will Strauss, TI took back 5% last year and now holds 43% of the DSP market on the strength of new products such as digital answering machines. "TI has broken from the pack by addressing new and different markets," he adds.
To keep its grip, TI developed processes to let customers hand-tailor their DSPs to include memory, power, and logic circuits from its vast portfolio. Sony, for example, designed TI's DSPs into the audio system in Boeing Co.'s new 777s, which gives every passenger up to 60 channels to choose from. By stuffing audio-compression circuitry onto the DSP, Sony eliminated the need to put circuit boards in each seat--landing TI a 10-year contract for about 600,000 DSPs.
Assuming TI can continue to help its customers with such innovation, it should keep outperforming the industry, analysts say. "There are going to be very attractive markets for all this stuff, and TI is going to be in a better position relative to most chip companies," says Montgomery Securities analyst Thomas A. Thornhill, who has a one-year target price of $140 a share. As it is, the pace of consumer-product acceptance has never been faster. Thomson Corp.'s RCA brand satellite televisions hit the 1 million production mark just 10 months after last fall's launch. That's one-quarter the time it took compact disks to reach the same volumes. Not surprisingly, TI's chips were inside the box. In fact, it's hard to think of an electronics-product launch for which TI couldn't supply the chips, the software, or even help with the product design. Customers may not ask for that yet. But Texas Instruments is ready and waiting.
Where TI Sees Its Digital Future
DIGITAL SIGNAL PROCESSORS
Riding shotgun to PC microprocessors or embedded in telecommunications and image-processing gear, DSPs are a booming opportunity--and TI's ace in the hole.
DIGITAL MIRROR DEVICES
The first all-digital display, these shimmering wonders could be the face on tomorrow's HDTVs and PC monitors and the engine for futuristic printers.
TI plans to double its 4% share by leveraging its DSP strengths to provide multimedia oomph. It wants to create entirely new gadgets for digital road warriors.
Sold to phone companies and cable-TV providers, these computer subsystems will let Internet surfers navigate by voice rather than keyboard.By Peter Burrows in Dallas, with Larry Holyoke in Tokyo