Science & Technology: SEMICONDUCTORS
AT ROCKWELL, THE WORD IS `WIRELESS'
Back in the 1970s, when Rockwell International Corp. was churning out bombers, satellites, and rocket engines for the government, a tiny skunk works in its semiconductor unit was working on a far more mundane product: fax machines. It was trying to dramatically pare down the hundreds of chips that it then took to send the image of a printed page over a telephone line.
The research paid off beyond everyone's wildest dreams. Electronic devices that once filled a file-cabinet-size box now fit on a single chip. Coupled with an aggressive strategy that has helped win 70% of the worldwide modem market for Rockwell, that chip is the foundation of a billion-dollar business: Rockwell Semiconductor Systems.
BIG RIVALS. Now, Rockwell is gambling that another skunk-works project can capture a major chunk of a new, lucrative market--wireless communications. On Oct. 30, the company unveiled a five-chip package that includes essentially everything needed to build one of the new 900-megahertz digital cordless phones. It's the industry's most highly integrated package, Rockwell claims, and the company is so confident of success that Rockwell Semiconductor has created a new division to spearhead the thrust: the Wireless Communications Div. Look for similar chip sets soon for cellular phones, personal digital assistants, and every other type of wireless gadget. Rockwell's goal is making "chips for personal communications of all types," explains Dwight W. Decker, president of Rockwell Semiconductor Systems.
Jumping into the wireless telephone business will pit Rockwell against such chipmaking stalwarts as Toshiba, sgs-Thomson, and Motorola. But Decker is undaunted. For one thing, he has already faced down the world's biggest chipmaker, Intel Corp., and AT&T Microelectronics. In 1990, Intel grabbed the top sales spot in modems for PCs, while Rockwell was doing so poorly that the company was on the verge of bowing out. But Decker led a small cadre that persuaded top management to launch an expansion drive instead. Less than two years later, Rockwell's modem sales had jumped sevenfold, and the company regained the commanding lead it once had in the 1980s. "We basically kicked Intel out of the modem business," exults Decker. Intel execs prefer to say that they decided microprocessors were more profitable than modems.
Decker also believes Rockwell has a winning strategy in wireless communications, the hottest segment of what he calls "personal electronics." The idea is to use Rockwell's chips as a package for all the knowhow that goes into a product. This is the approach the company is using for everything from its global positioning satellite (GPS) receivers for car navigation systems to plug-in boards that turn PCs into sophisticated home telephone switchboards.
For all practical purposes, then, Rockwell's chips are a product's heart and soul. All that the customers Rockwell hopes to win must do is add the exterior housing--and rush the product to consumers. The approach has benefits for both Rockwell and its customers. Because the chips are preprogrammed, chip-set buyers can get to market quicker, and Rockwell can command price premiums of up to 50%. In addition, Rockwell can sell to dozens of computer and consumer electronics companies, instead of competing by marketing products directly to consumers. "Rockwell has clearly done an amazing job staying a step ahead of the market," says Daniel L. Klesken, semiconductor analyst at Robertson Stephens & Co. in San Francisco.
If all that sounds eerily like the strategy of another chipmaker, $15 billion Intel, it is. As more and more functions of computers collapse onto fewer chips, Intel is being forced into the systems business. To speed its latest microprocessors to market and spur demand for ever faster PCs, Intel now supplies PC companies with motherboards as well as printed circuit boards for videoconferencing products. Similarly, Rockwell builds "board-level" systems while its chip designers are struggling to integrate the electronics onto chips.
Rockwell's modem business has been soaring, driven both by the company's advances in technology and the explosive growth of the Internet. "Rockwell has become the principal supplier of the on- and off-ramps for the Information Superhighway," says Gregory L. Sheppard, a semiconductmr analyst at market researcher Dataquest Inc. in San Jose, Calif. The boom shows no signs of abating soon: 29 million modems will be sold this year, according to International Data Corp. That's up nearly 50% over last year.
Meanwhile, Rockwell sees lucrative overlaps between its modem technology and the multimedia realm. It is adding voice-processing features to its PC modems, with video eventually coming as well. Ultimately, the same silicon may be able to handle any type of signal. Already, Rockwell's latest chip set gives a fax machine enough smarts to do double-duty as an answering machine. And its latest PC modem can handle simultaneous voice and data exchanges on the same phone line. More than 50 Rockwell customers will soon introduce modems with this feature, including Boca Research, Zoom Telephonics, and Supra. One application: People who answer 800-number help phones at PC companies will be able to talk and remotely examine a customer's computer at the same time.
Rockwell is also taking another page from Intel's book and advertising directly to consumers. Just as Intel has cajoled its PC-maker customers into plastering their PCs with "Intel Inside" stickers, Rockwell has launched a campaign called "Connect with Rockwell." Matsushita Electric Industrial Co., among others, puts the Rockwell stickers on its Panasonic fax machines.
It may sound like so much advertising hype, but the campaign is not without reason. All modem chips adhere to standards that enable them talk to different brands. But in addition, the chips often sport proprietary features designed to improve operations when the same brand of chip is on both ends of a line. With technology outracing the standards-setting process, modem makers are constantly unveiling new tricks. "When we introduce a new feature, people might ask: `Is that feature going to be important?' Well," says Decker, "with a 70% share, we can make it important."
To gear up for the campaign in the wireless telephone business, Rockwell is in the throes of a massive expansion. It has plowed $400 million into its Newport Beach (Calif.) chipmaking facility. In July, it bought United Technologies Corp.'s chip plant in Colorado Springs--and will invest up to a billion bucks there over the next five years. By 2000, Decker predicts that Rockwell will be a $1.7 billion chipmaker, with a third of that coming from wireless products. If he can meet those aggressive goals, then even ordinary telephone users--and not just astronauts and bomber pilots--will know what it means to connect with Rockwell.By Larry Armstrong in Los Angeles