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CEO of the year
Maxim's Jack Gifford created an amazingly prolific product-development team--now he's adding to it by acquisition
By Russ Arensman; Photography by Chistopher Springmann -- Electronic Business, 12/1/2001
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Web Exclusives: Gifford in his own words
Maxim's Principles
John "Jack" Gifford, president, CEO, chairman and founder of Sunnyvale, CA-based Maxim Integrated Products Inc., does not suffer fools gladly. A competitive, demanding executive, who's been in the semiconductor business longer than many of his employees have been alive, he has been known to berate Wall Street analysts during quarterly earnings conference calls for not having done their homework. He has thrown out investment bankers who arrived for meetings without a suit and tie. And he seldom, if ever, grants interviews to the press.
So it's with some trepidation that—having gained his consent for a rare audience—I wait 10, then 20 minutes past the appointed hour in Maxim's wood-paneled conference room, reading and re-reading the 13 "Maxim Principles" to which he encourages all company employees to adhere (for full text, visit Maxim's Web site: http://www.maxim-ic.com/AboutMaxim/Jobs/Culture.htm ). The first several items speak volumes about the company Gifford has shaped in his own image:
Don't accept the status quo;
Question everything and everybody;
Stand up for what you believe to be right;
Do not suffer fools;
Try as hard as you can;
Don't give up until you've won.
After nearly a half-hour wait, his assistant apologizes profusely and ushers me into the CEO's sunny corner office. During the next two hours, Gifford shows there's more to his personality than his tough-as-nails reputation might suggest.
A former UCLA baseball player (see "Big league dreams," see below) who bears a passing resemblance to actor William Devane, Gifford at 60 still plays first base on his company's semipro team. He's opinionated, plainspoken and yet far more charming than confrontational. For someone who usually goes out of his way to avoid the limelight, he proves surprisingly candid about his career, his approach to management and his strategy for running one of the chip industry's truly outstanding—though somewhat unheralded—companies.
The accomplishments of Maxim, as well as Gifford's significant contributions to the semiconductor industry, led ELECTRONIC BUSINESSS editors to select him as our 2001 CEO of the Year. Others have started and developed larger companies, but few have repeated the process more than once, as has Gifford, who co-founded Sunnyvale-based Advanced Micro Devices Inc. (AMD) in 1969. Fewer still have run their companies as successfully, and as consistently, as has Gifford.
Maxim reported more than 10 years of consecutive increased quarterly sales and profits until acquisition-related charges ended the streak this summer. Maxim has virtually no debt, and more than $1 billion in cash. For years, it has reported gross profit margins of close to 70%, while boosting earnings by about 30% annually. Its return on shareholders' equity has been among the industry's highest, multiplying investors' shares almost six-fold over the past five years, even as many other tech stocks' gains evaporated during the recent market crash. Last year, Maxim's sales crossed the $1-billion mark, vaulting it for the first time into the ranks of the industry's 10 largest makers of analog and mixed-signal chips.
"This is one of the outstanding companies in the entire semiconductor industry," says Tore Svanberg, senior semiconductor analyst for San Francisco investment bank Robertson Stephens & Co. "They really have been an execution machine over the past 10 years."
Publish or perishOn the wall in Maxim's lobby hangs a framed copy of the business plan Gifford put together in April 1983 to raise the $9 million in venture capital that launched Maxim. The three-page plan calls for creating an engineering-intensive company with a small cadre of top circuit designers "to proliferate new products."
So how has the company's strategy changed since then? "Almost not at all," says Gifford. "Fundamentally, it's publish or perish. We have to do 20% more new products every year, and if we do that we can grow our earnings 30% a year."
Today, of course, 6,000-plus additional employees have joined Maxim's initial half-dozen designers, and boosting earnings by one-third each year becomes increasingly challenging. "It's a geometric progression, you know," he says. "But that's what we do—we know that if we don't invent, we die."
Thus far, Maxim shows little sign of slowing. It has introduced an average of 27% more new products each year for the past half-decade. Last fiscal year, ended June 30, the company introduced more than 500 new products, up 30% from the previous year's 400. This year, it will need more than 650 new products to maintain that pace.
Daunting as that may sound, it's a reasonable strategy for attacking the $30-billion analog chip business, which is fragmented into hundreds of specialized markets, many of which are relatively small, and easily saturated. The best way to grow is to develop multiple products. But the trick is how to do that, with what seems to be a perpetual shortage of analog chip designers. Few engineering schools teach the arcane discipline, and those who wish to learn it typically require an apprenticeship of five years or more.
The flip side, however, is that analog technology is in greater demand than ever. Though once considered old-fashioned and likely to be replaced by digital alternatives, analog chips now are appreciated for the crucial role they play in translating real-world phenomena such as light, sound, pressure and temperature into digital data, and back again. From a business perspective, they tend to command much higher profit margins and have longer life spans than their digital counterparts.
Maxim sells more than 3,000 mostly analog products, which are organized into 14 business units and 42 product lines. Although that complexity presents a management challenge, having such a broad product line helps insulate the company from downturns in any one market, while creating a significant barrier to entry for potential competitors. It also allows Maxim to offer customers more complete solutions than its smaller rivals.
The analog and mixed-signal chip market is dominated by Dallas-based Texas Instruments Inc. (TI), which has acquired its way to the top, paying $7.6 billion last year for signal-processing specialist Burr-Brown Corp. and $1.2 billion in 1999 for power-management chip maker Unitrode Corp. TI's $4 billion-plus in sales last year were quadruple Maxim's. Other top players include STMicroelectronics, Analog Devices and Philips Semiconductor (see "Analog Leaders" chart, left page).
Most of those companies tend to concentrate on the industry's higher-volume application-specific analog markets, where competition is high, margins relatively low and product lives short. Maxim, on the other hand, focuses almost exclusively on specialized, high-performance analog markets where its most serious rival, Milpitas, CA-based Linear Technology Corp., has at times seemed almost a perfect clone.
Founded in 1981, two years earlier than Maxim, Linear has matched Maxim nearly step for step in the high end of the analog market for years. By some financial measures, including profitability, its performance actually has surpassed Maxim's. In recent years, however, Maxim has begun to pull away from Linear in both sales volume and the breadth of its product line.
In fiscal 2000, ended June 30, 2000, Maxim's sales of $864 million were a modest 22% higher than Linear's $706 million. A year later, thanks to Maxim's $2.5-billion acquisition of Dallas Semiconductor Corp., Maxim's sales soared to $1.57 billion, 62% more than Linear's $973 million.
Maxim also made a major foray a few years ago into communications chips for use in wireless telecom, optical networks, modems, set-top boxes, global positioning systems and various handheld devices. The move was made possible, in part, by Maxim's $26-million purchase of Beaverton, OR-based Tektronix Inc.'s semiconductor business in 1994. Maxim acquired the business mainly to gain extra fab capacity at a time when the industry was capacity constrained. But it also gained access to Tek's high-frequency bipolar chip technology, which more recently has been enhanced to create some of the industry's first silicon-germanium (SiGe) products. "That was a strategic move of immense importance to Maxim," Gifford says.
Although Maxim refuses to break out its product revenue, analyst Woody Calleri of Cleveland-based Midwest Research Inc. estimates that communications products accounted for about one-third of the company's revenue last fiscal year. Linear Technology also has begun developing communications-oriented products, but it got a later start and has aimed more at standard products usable in a variety of applications, while Maxim has put more emphasis on application-specific chips.
"Linear's been a little more pure to its original charter," says semiconductor analyst Terry Ragsdale of Goldman Sachs & Co. in New York City. "Jack is a little scrappier. He's been a little more willing to roll with the punches and go where the market is going."
Each quarter, Gifford says, the company starts developing about 140 new products, selected from a list of 500 or 600 candidates. "We are very much mercenaries," he says. "We have the best circuit development and definition organization in the entire universe and we will apply it where it can make the most money. We're not married to any particular product or product area." What is required, however, is a high probability that a new product will have strong growth potential and little direct competition, and thus be capable of producing the company's usual fat profit margins.
Gifford says that within four years, Maxim's high-frequency communications products should generate half the company's revenue: "We'll be a $3.5-billion company in 2005, and frankly, probably $1.8 billion of that will come from those areas we weren't even in six years ago."
A unique opportunityLast April, Maxim significantly expanded its communications product line, as well as its capacity to design new products, by acquiring Dallas Semiconductor. Like many of Maxim's strategic moves, the deal was more opportunistic than premeditated. Gifford, in fact, is an outspoken critic of growth through acquisition, arguing that most mergers are prohibitively expensive and likely "to dilute you both financially and intellectually." More often than not, he says, "acquisitions occur among mediocre companies."
Yet in late January, Gifford surprised the industry with the news that Maxim had agreed to acquire Dallas Semiconductor, a 17-year-old Dallas-based specialty chip maker whose CEO and founder, C. Vincent Prothro, had died suddenly from a heart attack a few months earlier.
Dallas' board of directors approached Maxim about the possibility of a merger in early December, but Gifford was skeptical about taking on what appeared to be an underachieving company. While Maxim earned a 32% after-tax profit margin in fiscal 2000, Dallas netted just $95 million on revenue of $517 million, for an 18% margin.
After further study, though, Gifford realized Dallas had a strong—but under-promoted—product line that had very little overlap with Maxim's. Moreover, its sales, manufacturing and product-development operations were ripe for improvement and cost cutting.
"Their productivity was half of ours in terms of new product development," Gifford recalls. "They had a lot of novel ideas, and their good ones were really good…There's no inherent reason their products shouldn't be making the same margins as ours because they were at least as proprietary." The problem turned out to be twofold: Dallas had a poor success rate at picking which new products to develop, and it was wasting money through inefficient operations. Says Gifford: "They were throwing the profits away."Gifford and his staff continued their due diligence and negotiations through the Christmas holiday. Shortly before New Year's Day, they agreed in concept to acquire Dallas for about 40 million shares of Maxim stock, but with one condition: Gifford insisted on meeting personally with Dallas' engineering staff to see if they were up to Maxim standards. "The deal wasn't going to happen if I didn't like those guys," he says.
In late January, just before the deal was to be announced, Gifford and about 20 of his top staffers arrived at Dallas' headquarters, and over a four-day period, interviewed most of the company's 230 engineers. "We determined that about 180 of them were guys that we would have hired at Maxim if we could have," he says.
Quick progressIn August, just four months after the deal closed, Maxim reported dramatic progress in cutting costs. By then, Maxim's 300-person direct sales staff had taken over Dallas' product lines and eliminated numerous outside sales representatives for an estimated annual savings of about $18 million. Another $15 million to $20 million in savings is expected from consolidating the two companies' distribution networks. Manufacturing-yield problems with some products were resolved, allowing the company to eliminate costly burn-in testing. Other chip test and assembly work was shifted from Texas to Maxim's facility in the Philippines, saving as much as $40 million annually.
In all, says Gifford, "we improved their profitability by over $150 million a year pre-tax, and they weren't even making $150 million [in profit] a year!" As a result, Maxim's fourth-quarter gross profit margin dropped only slightly after the Dallas acquisition—to 69.8%, compared with 71.4% in the previous quarter.
"Jack was always the leader, coming up with a team of people that he could win with."
—Don Valentine, partner, Sequoia Capital
Wall Street analysts, including some who initially questioned the wisdom of the deal, are impressed. "He's really surprised everyone in the financial markets about how successfully he's integrated the Dallas Semi acquisition," says analyst Louis Gerhardy with Morgan Stanley Dean Witter in San Francisco. Says Goldman Sachs' Ragsdale: "He's already way ahead of where I thought they could possibly be." Midwest Research's Calleri says the Dallas deal, thus far, looks like a bargain: "They gave up 11% of the company's stock to get 30% more engineers, about 30% more earnings and 50% more revenue."
With experienced analog design engineers as rare as hens' teeth, however, Maxim's top priority has been to retain as many of Dallas Semi's engineers as possible. Toward that end, it assumed all of Dallas' existing stock options and extended new options under Maxim's employee plan, which requires employees to wait five years before their option grants are fully vested. "We have not lost an engineer yet," says Gifford. "Not only that, they're recruiting and they're getting good people to come to Dallas."
Still to be seen, however, is how well the different cultures at Maxim and Dallas mix over the long term. Despite the financial incentives, some Dallas employees may not feel comfortable at a company that bluntly states in its pitch to new hires that "Maxim is not right for everyone. But it is right for a select few who are intolerant of mediocrity."
"He's got high expectations and you'd better meet them," cautions Goldman Sachs' Ragsdale. On the other hand, he adds: "If you're a dedicated analog guy, why wouldn't you want to work for one of the best operators in the business?"
An analog lifeGifford has worked in the analog business for most of his adult life, starting out as an engineer designing video and radio-frequency amplifiers and later moving into transistor sales with Fairchild Semiconductor Corp., then based in Mountain View, CA.
Don Valentine, now a partner with the Menlo Park, CA-based venture capital firm Sequoia Capital, hired Gifford at Fairchild in 1964 and put him in charge of Hughes Aircraft Co., the company's largest account. From the beginning, he says, Gifford was "very street-smart and competitive," even scheming to recruit the best bunch of swimmers or volleyball players to dominate in-house competitions: "Jack was always the leader, coming up with a team of people that he could win with."
"This is not a company that's run by committee...If you peel back the company and look at the core values, they flow downward from Jack."
—Scott Randall, analyst, SoundView Technology Group Inc.
In 1966, at 24, Gifford was promoted to product manager of Fairchild's new analog chip division, the industry's first dedicated analog business. One of his notable hires there was a young Hughes Aircraft engineer named A.C. "Mike" Markkula, who later went on to co-found Cupertino, CA-based Apple Computer Inc. Markkula says Gifford had a knack for analyzing markets and devising strategies to attack them. "Jack's a lot better marketing guy than he is a salesman, and I mean that as a compliment," he says. "He can think strategically, he has a good head for numbers and he can put together a plan and execute it."
Gifford left Fairchild in 1969, joining forces with a former Fairchild colleague, W.J. "Jerry" Sanders III, to co-found AMD, which has since become a $4-billion microprocessor and memory company. Sanders was CEO and Gifford was chief financial officer. But his tenure there lasted just two years. Gifford says only that he had a "falling out" with Sanders. Sanders declined to comment, but Valentine speculates that the company simply wasn't big enough for two such strong personalities. "The diameter of a spotlight only fits so many people," says Valentine. "And Jerry was an individual who always liked to be in the spotlight."
Parting wordsFor a while, Gifford turned to farming, building a small fruit orchard near Sacramento into a successful 2,000-acre tomato producer. In 1971, he was recruited to help Cupertino-based Intersil Corp. enter the analog data-acquisition business. For several years he worked there part time, while continuing his farming and other business interests. By the end of the decade, analog products had become Intersil's largest business, with sales of $100 million.
"Fundamentally, it's publish or perish. We have 20% more new products every year, and if we do that we can grow our earnings 30% a year."
—Jack Gifford, CEO Maxim Integrated Products
When General Electric Co., Fairfield, CT, bought Intersil for $240 million in 1980, Gifford negotiated a deal with John "Jack" Welch Jr.—who was about to become GE's CEO—allowing Intersil to remain an independent subsidiary with its own stock-option plan. Gifford became CEO of GE's Intersil division and, for a time, was one of Welch's favorite examples of the type of new, dynamic leadership he wanted to instill at the company. But that attention, and Intersil's special treatment, caused resentment among other GE managers, none of whose businesses had stock options. Soon, Welch was under pressure to reverse his promise to the Intersil division.
Things came to a head at an executive cocktail reception, when Welch began pressuring Gifford to give up Intersil's stock options. "He just kept at it," Gifford recalls, "and finally I was so mad, I said 'f..k you' and I just turned around and walked out. …Well, not surprisingly, a few weeks later they fired me."
Gifford admits to some regrets over the Welch confrontation, and says the two are friendly again today. He returned to farming and dabbled in venture capital for a while. But eventually, after hearing a crescendo of complaints about GE's management from his former employees, he decided to hire some of them and start another analog company, called Maxim. The rest, as they say, is history, and as Gifford laughs today: "It'd never have happened had I not told Jack to get f….d."
Management styleDespite their relatively short time together, Gifford says, Welch had a big influence on his own management style. He also gives credit to Orion Hoch—the CEO of Intersil during much of the 1970s who went on to run Litton Industries Inc. Most important, though, was Valentine, his boss and mentor at Fairchild. "Don, by far, had the most influence on me because I was around him a longer time at a younger age, and he was tremendously disciplined and talented," says Gifford.
"I think my inherent ability and talent was different from all of theirs," he adds. "But they basically gave me some refinement, structure, discipline that I didn't have."
Gifford dismisses the notion that he deserves more than a modest share of the credit for Maxim's success and takes offense at the suggestion that outsiders might view Maxim as "Jack's company." "That's not coming from me," he protests. "I don't believe that. It's untrue, and it's unfair to the rest of the people here."
Maxim, he notes, has more than 300 director-level managers running its multitude of product lines, plus several dozen executive managers, managing directors and vice presidents over them. "That's huge," he says. "And these director-level people fundamentally are autonomous. …I'm to be listened to and reckoned with, but I'm not running it." Minutes later, however, Gifford is conceding that "I micro-manage the hell out of stuff."
There's no denying that Gifford's imprint is all over Maxim. "This is not a company that's run by committee," says analyst Scott Randall, managing director of New York-based SoundView Technology Group Inc. "If you peel back the company and look at the core values, they flow downward from Jack."
And as willing as he is to share the credit, Gifford is certainly in no hurry to hand over the reins. "I'm the youngest 60-year-old you've ever seen," he jokes, adding with obvious sincerity: "I love this job."
When the time comes, however, Gifford says there'll be plenty of talent on Maxim's bench ready to take his place. He refuses to identify any possible successors, but says at least "three or four guys" have the potential to step into the CEO's job.
On the other hand, he notes, "My successor will not be another Jack Gifford." As if that were even possible.
Russ Arensman is a senior editor with Electronic Business. He can be reached at arensman@rof.net.
| Rank | Company | 2000 Sales | 1999 Sales | % Change |
| 1 | Texas Instruments | $4,101 | 2,800 | 46% |
| 2 | STMicroelectronics | 3,737 | 2,258 | 66 |
| 3 | Analog Devices | 2,203 | 1,254 | 76 |
| 4 | Philips Semiconductor | 2,019 | 1,817 | 11 |
| 5 | Infineon Technologies | 1,922 | 1,702 | 13 |
| 6 | National Semiconductor | 1,808 | 1,426 | 27 |
| 7 | Motorola | 1,252 | 965 | 30 |
| 8 | Toshiba | 1,252 | 961 | 30 |
| 9 | Sanyo | 1,180 | 885 | 33 |
| 10 | Maxim | 1,074 | $675 | 59% |
| SOURCE: DATAQUEST, A UNIT OF GARTNER INC. | ||||
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