Texas Instruments: Digging In Against The JapaneseJonathan B. Levine
It's Sunday afternoon at an English countryside manor, and Roberto Schisano sinks into an overstuffed sofa for a breather. Since his promotion to president of Texas Instruments Europe three months ago, the energetic Italian has been on the road constantly, meeting customers and TI's 7,000 local employees. Nor does he expect the pace to slow after the initial round of glad-handing. "I'm on a permanent swing," he says. "The pitch of competition in European electronics is getting intense."
And how. Schisano and his company are headed for a costly fight to survive in Europe's $10.7 billion chip market. Although U. S. and European companies still dominate sales, the Japanese have more than quadrupled their share over the past decade, to 17.8% last year. Now, by pouring billions into memory chip plants in Europe, they are after an even bigger bite. That presents a particular danger to TI, since the company is the largest non-Asian maker of such chips. How TI fares in this struggle will say a lot about the West's ability to hold the line against the Japanese.
Europe is the hot market. Although the volume of chip sales there is still considerably lower than in either Japan or the U. S., it's growing faster. And with the U. S. and Japan dominating their respective home markets, maximizing economies of scale hinges on scoring big in Europe. That, along with tariffs and political pressures, is why the Japanese are building the plants. Both Mitsubishi Electric and Hitachi are putting up plants in Germany, while Fujitsu is adding one in Britain.
In the high end, TI hopes to turn a Japanese strength into a weakness. Such Japanese giants as NEC, Hitachi, and Toshiba are fully integrated, meaning they put their chips into their own products. That means they are both suppliers and competitors to companies such as Bull, Alcatel, and Ericsson. TI does not make end products that compete, and that's the opening it seeks to exploit. "We're trying to become the Europeans' inside semiconductor house," says Marco Landi, TI's European marketing vice-president.
To help achieve that, TI now has a string of supply and technology-sharing partnerships with top European companies. "Our European relations--probably more intimate than anywhere in the world--are vital to help us know where to focus product development," says Jerry R. Junkins, TI's chairman. For example, TI trades its technology for orders and knowhow from L. M. Ericsson.
To go with its new approach, TI has a new plant in Europe. Unable to match Japanese economic might on its own, TI in 1989 struck a deal with the Italian government. It put up $700 million for TI's proposed $1.2 billion package of spending on manufacturing and R&D in the depressed region around Avezzano, east of Rome. The plant is a cornerstone of TI's strategy. Opened last November, it's designed to support a two-pronged effort: Push high-volume commodities such as memory chips at low cost while offsetting their volatile price swings with stabler, more profitable specialty products. Ironically, the plant uses some technology developed in Japan by TI in deals with Fujitsu and others.
PLUNGING PRICES. Making a profit is another matter. Made-in-Japan chips have been subject to floor prices set by the European Commission. But output from new local plants will not be under the same constraints, allowing the Japanese to virtually price at will. "Price pressures in Europe will become very extreme," warns Jonathan Drazin, an analyst at Dataquest Inc. Indeed, TI's loss of $39 million on sales of $6.6 billion last year was partly due to plunging prices of its memory chips.
All of which causes TI to redouble its drive to strengthen European ties in the future, probably through joint ventures. "Everyone talks about Fortress Europe, but there's also a growing consensus that Europe needs more interaction with U. S. companies," says Schisano. With pressure building from Japan, it's a formula worth considering.