Texas Instruments: Enviable position

Texas Instruments gears up to reap the benefits of the age of signal processing--and analog ICs.

by Drew Wilson -- Movers and Shakers, 8/15/2003

AT THE CORE OF THOMAS Engibous' vision for the next five to seven years is a radiant marriage between digital and analog. Digital signal processors (DSPs) and analog ICs, the CEO of Texas Instruments believes, will hold the same importance in the Internet age as transistors did during the age of mainframes and as microprocessors do in the age of the PC.

Engibous has therefore positioned his company squarely in DSP and analog to address what he sees as a signal-processing boom, which in turn will spout a cornucopia of networked appliances. Digital still cameras, audio players, camcorders, and the like will be linked to home networks and broadband Internet connections. And they will be based on signal-processing, not traditional processors, he says.

"DSP is critical, but at least 50 percent of the solution is analog components, ranging from power-supply management to data conversion," Engibous says. "We've taken the opportunity to optimize our analog products to work together with signal processors."

As the world's second-leading analog supplier, Texas Instruments probably has a keen understanding of things to come. The company grew its analog sales about 5 percent in 2002 to $3.1 billion, scoring a slight marketshare gain to 13 percent and pulling closer to leader STMicroelectronics, according to Databeans Inc.

TI has been particularly successful in penetrating the analog-baseband market for cell phones, says Susie Inouye, senior industry analyst at Databeans. "That's crosstailing along with their DSP technology, which is used in the digital baseband," she adds.

Engibous believes that TI's product portfolio has been the company's strength. He points out that two-thirds of the total analog market is mixed signal and the remainder is high-performance standard products. "TI's analog portfolio mirrors that fairly well," he says.

Analog is TI's largest business segment, accounting for 40 percent of total revenue. Analog is split into two divisions: custom products aimed at specific customers and high-performance analog.

The custom-products division is involved in large vertical businesses, such as cell phones and DSL modems. The company offers analog products along with whatever else is necessary, including software.

TI competes directly with STMicroelectronics in this area, says C S Lee, vice president of the high-volume custom-products division. In certain areas, TI wins more than ST, and in other spaces ST has an advantage, Lee says. For example, TI has an edge over ST in disk drives and power management, but the two are neck-and-neck in the printer and automotive areas.

"There are only two guys in the world doing $3 billion plus in analog," Lee says. "All the rest are in a different category."

"DSP is critical, but at least 50 percent of the solution is analog components, ranging from power-supply management to data conversion. We've taken the opportunity to optimize our analog products to work together with signal processors.” Thomas Engibous, CEO, Texas Instruments

Over the last four years, TI built up its other division, high-performance standard analog products, by acquiring companies Burr Brown, Unitrode, and Power Trends.

Gregg Lowe, senior vice president of the high-performance analog division, sees the moves as acquiring analog talent and matching it with TI's manufacturing expertise. "The acquisitions have catapulted TI into the high-performance space," he says.

In standard products, TI has some 27,000 customers across all end-equipment segments, from cellular basestations to PDAs to industrial products. In the overall $24 billion analog-IC market, standard analog represents about $9 billion. Lowe says TI is leading the pack in standard analog despite formidable competition from Maxim, Linear Technology, and Analog Devices.

The dynamics of this [standard analog] market are very simple--customers pay for specific performance of products," Lowe says. "Most of the time that manifests itself in things like noise, distortion, and speed, and that's how you differentiate--by giving performance points that nobody else can meet."

Moreover, because most engineers have been trained in digital processing, many customers aren't experts in the analog domain. "The ability and extent to which we can offer our customers products that are easy to use is a pretty key thing," he adds.

Analog success depends largely on seasoned engineering talent, Lowe says, adding that TI hires PhDs out of universities. After about five years they deliver results. By comparison, good digital engineers can be brought in at the BS level and begin making contributions in six to nine months, he notes.

Lowe points out that analog content is growing in the end markets TI serves. The latest Palm Zire 71 PDA, for instance, has 10 chips: one digital and nine analog. "The dollar content of analog chips individually is relatively small, but as a collective it's higher than digital," he says.

Lee adds that digital is integrating some analog functions, but that the trend is offset by mechanical functions turning electronic. He cites a car's braking system, today driven by an IC but in the recent past mechanically based, using a solenoid driver and fluid pressure. "Anytime you go from the real world, before it gets to a digital function you have to go through an analog stage," Lee says.

Overall, TI grew revenues slightly in 2002, to $8.38 billion, though it took a $344 million net loss for the year. However, for the three months ended March 2003, the company showed robust results, with revenues up 20 percent from the same period last year, to $2.19 billion, and net income of $117 million.

When the market makes a clear recovery, Engibous sees a separation between those companies that invested in the new manufacturing materials, wafer size, and lithography processes, and those who did not.

During the industry's worst downturn, Engibous says he studied the various responses of companies, including TI. Chipmakers, he found, become victims by cutting R&D and investments in manufacturing technology. Or they sit and wait out the down cycle. Or they take the offensive.

"This time we decided to play offense," he says. TI shut down its two least-effective wafer fabs, did not cut R&D, upgraded three analog fabs, and built up a 300-mm fab to take it through the 65-nm mode.

"All those expenses are now behind us," Engibous says, adding that when the market picks up, he's confident TI will emerge in an enviable competitive position.