CEO Roundtable
CEOs speak out
-- Movers and Shakers, 6/15/2001
What a difference a year makes. On a special night at The Tech Museum of Innovation (San Jose, CA), we gathered a group of influential CEOs to talk candidly about the ups and downs of the electronics industry. Our discussion revolved around the challenges these leaders face in their quest to be the best, how they are committed to their customers, and how they maintain their values in an ever-changing economy. As we found out, it takes the right amount of risk, the right employees, and sometimes, a sense of humor.
Q: Well, the first thing I’m going to ask is the obvious—how do you handle the fluctuating economy?
Scott Kriens (Juniper Networks): We’re in a very interesting market. It’s not as bad as it seems to be. It wasn’t as good as it appeared to be last year. I was talking to [the other CEOs] earlier about what to do about it, and I don’t know that anybody knows. I don’t think there’s any brilliance in the insight that we’re following, which is [that] the development engine and the R&D has got to continue unabated unless something fundamental in the assumption about the marketplace has changed. And we don’t see any change, certainly to the Internet infrastructure or to the need for businesses to be online. It doesn’t really have much to do with the dot-com thing. In fact, that’s probably an unfortunate confusion. It really has to do with the same businesses that have always been here building these supply chains and efficiencies that are going to make them more competitive. We don’t see that abating.
We also talked in a discussion the other day about the duration, and what to expect out of this. And I think the fact that the setback has come on fairly quickly is a good sign, because what it means is that businesses are more quickly able to respond. One of the interesting numbers I saw not long ago is that inventories in December went up one-tenth of 1 percent. Historically, most of the long-lasting pullbacks seem to have come about because people didn’t react in time and got either over-committed to inventories or work forces, and then had to over-correct for that. And these cycles last so long that the consequences are prolonged.
The fact that the economy can turn on a dime is the very evidence behind the likelihood that it can also turn again, and it won’t let itself—and the companies involved won’t let themselves—get into the position of being in a prolonged imbalance.
I think in the second half of the year, the heroes are going to be made in those that find the way to build businesses out of all of this. I think that gives the economy a chance to react in the planning cycles and the spending that goes on. And I suppose for all of us, just managing the development engines, managing the business and shaping the results around the realities, is what we all have to do this year.
I feel a little fortunate in Juniper being the size company it is, because we can succeed in a micro condition without being as burdened by the macro environment as probably some of the larger companies. And that’s a luxury we’ll do our best to take advantage of.
Stephen Luczo (Seagate): I think Scott said something very important, and I’m going to take a different point of view on something. I think his point on the whole Web thing is dead on. You know, for all of us that run businesses, we never viewed the Web as—no offense to Amazon—selling books online. It had to do with replacing your computing infrastructure inside your company with one that was more scaleable and manageable, because none of us can afford to do a client-server [conversion] or any type of conversion at a Fortune 2000 level that we had to in the ‘90s. There’s just no way you can take four years to convert your underlying infrastructure.
What I worry about is the collateral damage. You’re hearing now people say things like, “Well, does it put the Web in question?” Not for what we’re doing on e-commerce. But I think it’s something that we should take a look at and make sure the leading indicators don’t get away from us there.
I actually think that there’s another issue here not related to that, which is the amount of value that was taken out of the stock market, and the impact that’s going to have on the broad consumer base. When you have $850 trillion dollars of real value, it’s some absolutely phenomenal amount of wealth that is gone. That is going to impact people. And now we’re also starting to see the effect in Europe, which means the effect in Asia/Pac is probably three to six months later.
That’s when I think that for all of us, while we maybe three months ago believed we were talking ourselves into a recession, or a slowdown, or a slowdown in growth, I think now you have to look at it and say, “What is the right way to run my business given an environment that everyone says they have no virility if they’re dealing with end users.” You can see this thing kind of spreading in a way that raising the interest rates or lowering the interest rates by a quarter point isn’t going to do anything at this point.
Ned Barnholt (Agilent Technologies): I think some of the impacts we are seeing today are self-inflicted too. If you look at last year, it was a year of excesses. When I went around to many of the semiconductor companies, everybody was doubling wafer starts. Wireless companies were all trying to get 50 percent marketshare.
I think part of what we’re seeing is the correction from some of these excesses, which ultimately have to go through the system until we get back to some more normal demand. And the question is, how long is that going to take? I think people I talked to three or four months ago thought it might take six months. Most people now are talking about a much longer period of time to work that through.
On the other end, however, our industry is based on changing technology. So 3G is going to happen. New optical networks are going to happen. Capacity is going to increase in the Internet. So a lot of these underlying drivers are the bright side of our market, of our business, and we need to be careful not to lose sight of those.
Rick Wills (Tektronix): I tend to agree with Ned. And there was a fundamental question about the Internet. The Internet has a black eye, and sometimes when you see “dot-com,” you kind of turn your head away a little bit. But I think if you look at it from a business aspect and a society aspect, the need to communicate, or to run your businesses effectively or efficiently—that genie is out of the bottle. And you’re not going to put it back.
And I look at it in a couple of different ways. First, what we do in our company and what our customers are doing with the Web. I mean, all of our HR resources—we can’t live without the Internet, either internal in the company or how we connect with customers.
Then, if I look at it from a society standpoint—I have two 14-year-old children and I have an 18-year-old. And my 14-year-olds spend two hours a day on their computer. They communicate with their friends that way. They do their research and their homework. And there’s a big difference between them and the 18-year-old, in that the Internet and what that means is a part of their life. And if we had a DSL line in our house, they’d probably use it even more.
Last week, I was in Asia. You go to Japan—20 million i-Mode phones in two years, because people need to communicate. I mean, this genie is out of the bottle. 3G will happen. Optical networks will happen, and I think we got a little bit of a black eye for what happened a year ago. And when they write the business book of the ‘90s, the great ‘90s, there’s going to be a chapter in there, and it’s going to say, “What the heck were we thinking?” That doesn’t make the whole thing wrong.
Richard Hill (Novellus): Well, I think we’re all realizing now, that while the dot-com craze sounded great, click and mortar is a reality. The ability for businesses to use the Internet as a vehicle to improve communication within their own company, to their customer base, to their stockholder base, is huge. I mean, it’s the most efficient vehicle you could possibly use. But what we’re missing, to really get this thing turned around, and I don’t know when it gets turned around, is...we need something that is going to excite the consumer to buy. I think we have “gigahertz fatigue.” I mean, once you’ve got a gigahertz, do you need 2 gigahertz, 3 gigahertz, or 4 gigahertz? I mean, I’m tired of it. Give me an application that I can’t live without.
Q: How much did you see your businesses affected by the dot-coms absorbing a major amount of talent? And secondly, have you seen that ease off now that the dot-com bubble got popped?
Tom St. Dennis (Wind River Systems): The dot-com phenomenon, at least in the Bay Area—I think it had different effects on different parts of the world. But in certain areas that were leveraged or challenged by it, it was really tough. I couldn’t believe how many employees left for 1 percent of the company to be a receptionist. It was just unbelievable what happened.
How many of them actually got rich? I’ve got to go back and kind of do an audit at this point in time. How many of them really came to fruition? We’ve had a lot of people come back already. I mean, it was less than 12 months. But in terms of an easing—no question.
Ray Sharpe (Cookson): We had the same problem in the Northeast. We couldn’t attract talent. We couldn’t keep talent. Good people would leave for an opportunity with Internet stock options to be the next multimillionaire. And then some of them made it and some of them didn’t. It would be an interesting question to see who still has the wealth from it. But it also forced us to try to be a little bit more creative in how we paid people, how we excite them to work for us. I think options were a big part of what we lost—our particular company lost—people for.
Ned Barnholt (Agilent Technologies): It wasn’t just the dot-com phenomenon either. It was really a VC phenomenon. There was so much VC money over the last couple of years. It didn’t matter whether it was a wireless company, an optical company, a software company—people were just willing to throw around crazy offers to get good people.
Fortunately, that’s changed a lot. The environment has changed a lot. We are getting a lot of people back, and I think every once in a while these kinds of corrections are probably good for the system. So there’s a bright lining in here.
Q: So much of this industry is now partnering and bartering. It’s everywhere, and you are all a part of it. How do you decide what those alliances and partnerships should be? How do you determine them going forward, the opportunities?
Willem Roelandts (Xilinx): Well you know, we are a fabless company, so for us, partnerships are really essential. And they really are part of our everyday business management. The decision on whom we partner with is mainly based on technology. We like to partner with companies that have the right technology that we can use. And because we are fabless, we are, I think, pretty good at building partnerships.
One of the questions that we always ask is not so much what can a partner do for us, but also what we can do for them? Those partnerships really only work if you’re building a win-win situation. Then you’re successful.
And it’s also the partnership of work. If you cannot create a business environment the partner takes advantage of, in the long term, the partnership is not going to work. So that’s a very critical part.
On the other side, I think what we see happening is more and more of this fragmentation of the whole supply chain, where people are focusing, or companies are focusing, on the key areas. They partner with other companies who focus on other areas, and they create some kind of an equal system—to use an overused word—that is really beneficial to each other. I think that’s the trend we’re seeing.
Ray Bingham (Cadence): The thing that makes it possible to think about partnerships in an entirely different way is the Internet. Before, you might choose your partners because you could jointly offer a product to the marketplace and create leverage for yourselves, or for that interest group in the marketplace, because of your combined and complementary resources. Today, the Internet enables you to think about the supply chain, using it in a very efficient way and a highly leveraged way—vendors, technologies, and customers that create value as a business model.
If you look back at the Internet discussion, you had people trying to make a business out of an enabling device, and I’m not sure that that’s ever possible. Here, you can integrate an industry without all of the legal and the bulk problems with integrating an industry if it happens to be owned by a single set of shareholders.
Brian Halla (National Semiconductor): You think about what partnerships mean to the semiconductor industry. The PC came out in 1978, and the partners were essentially IBM, Microsoft, and Intel. And that kind of became ingrained, and the rest of the industry would kind of wait to see when Intel would come out with new clock speed, when Microsoft would come out with a new version of Windows. And IBM kind of set the stage for the clones, but that was their most important role.
You look at what’s happening now going forward. I think Rick [Hill] said it. You can’t tell the difference between a 600-megahertz PC and a 1.2-gigahertz PC without a stopwatch. And back to what we were saying about the cost of living—Jack Welch [CEO of General Electric] said everybody is paying more for energy. Everybody is paying more to fill up their tank. If you’re on an adjustable-rate mortgage, you’re paying more in monthly mortgage payments, and everybody’s artificial wealth disappeared in the stock market. So why are you going to buy a PC if you don’t really need one? That killer app isn’t there. Why are you going to buy a cell phone, especially in the United States, when [WAP] was kind of a miserable failure. There isn’t an equivalent of an i-Mode or an SMS.
Going forward, I think we’re going to see more products arise from partnerships, like the AOL TV set-top box. Liberate did the software. It was Wind River’s VxWorks [operating system]. Phillips did the box. AOL orchestrated everything. National did the semiconductors, and Local Research did the platform. And those companies were in lockstep from the beginning, and to this day, on everything. It wasn’t like any one of us could drop off after we thought we had done a good job.
I think going forward it’s going to be at least five partners, seven partners, 10 partners. And there’s a lot of choices for OSs now. There’s a lot of choices for CPUs. There’s a lot of different end-user products that are all going to be optimized for accessing the Internet, not just the PC, although that’s the clearly the most pervasive.
The products that will access the Internet will all do their job better for accessing the Internet, by the way. The TV, set-top box, video games, PDAs, Palm personal computers, auto personal computers, they’ll all do their job better for accessing the Internet, but their primary function will be the function they had before they started accessing the Internet, not a PC that’s based on the paradigm that’s been with us for 22 years.
The other thing is, every man, woman, and child in this room has grown and breathed every breath, formulated every thought, in the age of the computer. And the computer, thank God, brought us the Internet, and the Internet brought us the age of information, and the information brings us productivity. Now all of a sudden, everything we knew from the time we were born—all bets are off. It’s what makes us more productive.
So a quick lesson in being a visionary, just think of what you don’t like and know somebody will fix it. Standing in line—you won’t have to do that anymore in a couple of years. Everything will be done by your Bluetooth announcing that you’re there and nobody fondled your bags or asked you to carry anything. So you won’t have to stand in line at American Airlines, you’ll just walk right onboard. And we’re just going to see some huge productivity gains going forward.
And [George] Gilder [author of the Gilder Technology Report] says a thousand-fold increase in productivity in the next five years, a million-fold in the next 10 years. What if he’s wrong by a factor of 10? It’s still a big deal. It’s still a huge deal. And the good news is that it all sits on the shoulders of the companies and the industry we represent. It can’t happen without it.
We have a momentary stumble here because of a consumer-confidence issue, and the fact that this is the first time that PC demand has declined. In the United States, at least, people don’t need another GSM handset, so I think we’ve got a temporary lull.
At some point in time, unless we all believe that the Internet was a fad, then you’ve got to say things are going to take off again. I think for all of us that say, “Ah, it’s next quarter, it’s third quarter, it’s fourth quarter”—we’re snowplowing the bad news into some area that’s farthest out [so] that we can’t be blamed for it, or nobody will remember that we forecasted it.
Scott Kriens (Juniper Networks): I was just going to make a quick comment on killer app because I’m not sure that’s the place to look for this. It would be if we were looking for this to explode in the living rooms, but I think the idea as to what you were saying earlier, Brian, about businesses [being] more efficient and problems get solved and costs go down. What’s going to drive the infrastructure into existence and drive the use of the online tools is that it’s going to be less expensive to run all of our businesses if we use it efficiently. And it’s going to drive sharing of assets, as opposed to having to own them, because we won’t have to relinquish control when we share them because we can network to them in a shared location.
The danger in the kind of killer-app concept is that it bets that the majority of the change element in this is going to be driven from living rooms, and I think it’s going to be driven from boardrooms. It’s going to be driven from people that say, “On the front end of it, we can get a competitive advantage if we drive cost savings by connecting to our suppliers.”
Stephen Luczo (Seagate): We’re the only ones that can afford it. We’re the only ones that can afford to drive down the cost of computing so there can be a horizontal sell to that. If you don’t do it—fundamentally change your business—you won’t be competitive. I mean, there’s no question. If you are not going down a path right now, e-commerce, Web-based, you will not be able to compete.
Brian Halla (National Semiconductor): The difference between this recession and the last recession. I worked for Intel at the time, and one of Gordon Moore’s lesser-known laws was the survival interval, where you take your cash and divide it by your payroll to figure out how many months you can stay alive. The difference now is, we’ve all had a pretty good couple of years. We’ve all got cash in the bank. And we all know we’re going to need to buy the next router and upgrade the infrastructure and upgrade the PC. We’re just all waiting to see what’s the best time.
Stephen Luczo (Seagate): I don’t know that I even believe that the IT side of capital budgets has been cut that much yet. For us, flat to maybe minus 5 percent at the most on the capital associated with IT is where Seagate is.
Then if you look at the Web-based aspect of the IT expenditures, it’s up significantly. And so I think there’s this “How do you manage expenses in this environment?” But it’s a separate issue from “Where are you spending your money?”
Richard Hill (Novellus): I think in a non-growth, non-consumer-growth environment, survival of the fittest in the corporate world is a function of return on net assets and the ability of corporations to invest wisely enough to be the most efficient producer and survive. But don’t delude yourself. The reality is, it’s worldwide economic growth that drives commerce. And we have to stimulate that.
We stimulate that through imagination and improving the quality of life throughout the world. And we’re a major portion of that. I think it will stem from places like Silicon Valley, where we create new ideas and new visions of how you could live your life. That’s what will drive us.
And in the corporate infrastructure, I think we’ve got to continue to be more efficient. And those that won’t, I agree with you, will go by the wayside. But the end goal throughout the world is to improve quality of life. And that’s a function of our ability to be able to stimulate imagination—stimulate desire and want in people. And I think right now people are a little fatigued.
Stephen Luczo (Seagate): I know here in the Valley if we could get a cell phone that could hold a connection for more than 30 seconds, I’d be happy. With three people helping me, it took me five months to get a DSL line in my house. And people wonder why the growth isn’t as fast as they thought, right? Unbelievable.
Ray Sharpe (Cookson): I think that cutting capital budgets—we are all doing that right now—and looking to where you make the best return at this current time is the key issue. And for us, investing in Web-based things that allow us to hopefully get better visibility, as Scott was talking about earlier, how quick the inventory has come down. It’s amazing. Though I’ve talked to a number of you around here, and you’re all as surprised as I am how quickly this whole scenario came to a screeching halt.
So one of the goals we’ve got to figure out how to do in this industry is how to work together to eliminate the tenacious impact of all these ups and downs. But where we’ve cut back on the Net or investing is on some of these things that were sort of faddish. Trying to figure out how to generate revenue models that really didn’t make sense in order to tell your shareholder base that you were looking at various models for revenue generation. And I just haven’t seen it in our business where those revenue models are going to work for us.
I agree that working on supply-chain management and lowering our basic cost structure are where costs are going and where our infrastructure has to be beefed up, and that’s what we’re trying to do.
Ray Bingham (Cadence): It does seem a bit of an oxymoron to say that you have to Web-enable the things that you do so that you can be cost effective. You have to use the reach of the Web in order to accelerate your product-development cycle and reach the pieces of new product development that you have to reach in order to be competitive and grow the top line. And at the same time, pretend that IT, which is driving all of that, is going to fall off.
Businesses that aren’t investing in IT, unless you just account for the Web investments in a different place, are investing in their IT infrastructure. They’re investing in that kind of capability wherever you look. You cannot do one without the other.
Stephen Luczo (Seagate): None of us, I don’t think, was surprised by, “Oh gee, the service provider has imploded, and the telcos didn’t deploy opticals as fast as Wall Street thought they were going to.” You had to do about 25 minutes of fundamental analysis to say that wasn’t going to make any sense. But it doesn’t mean, as you say, that you’re not moving towards a Web-based infrastructure to run our businesses.
Now, what percentage of that is IT budgets, and how fast is it growing? Those are good questions, but I don’t think people are cutting back there. So if that’s where the majority of your business is focused, great.
Richard Hill (Novellus): I often see where people in the organization don’t have a process defined that works to begin with. And they decide they want to apply a computer to the problem. And the reality is, you get chaos. There’s a lot of businesses that do that, and they’re going to go out of business. That’s not really getting a return on investment in IT, which I think is an extremely important element of the business. People throw more money away at that than they should.
Tom St. Dennis (Wind River Systems): It’s not just now either. I mean, go back to the ‘80s, I don’t know how many generations of PCs just got thrown out because they never really contributed anything. I used to be amazed at the number of people who were just in fooling around with PCs all day long to get a spreadsheet out. I mean, you could have done the analysis on an HP35 a hell of a lot quicker, frankly, but we had to have a computer because if you don’t invest in that, you’re not at the leading edge of this stuff. So there’s kind of a Darwinism here about this investment.
If you can turn some of this technology to help to manage energy costs and work on some quality-of-life stuff, as opposed to what we kind of get guilted into—“if you’re not investing this much in IT, you’re not doing the right thing for the future of your company.” Some of that’s true, but there’s a lot of waste out there yet. And unfortunately, I think the industry got built up on some of the revenue around the waste.
Aart de Geus (Synopsys): One of the things that strikes me is that in the first part of this discussion, it’s all about costs, cutting costs, cutting waste, increasing productivity. I think the winners are the ones that race toward different finish lines, because in the second half of any form of financial stress period, that’s when you see people that are strong enough invest like mad to get some par differentiation on their core competence. Not on the context, on the core competence, because this thing is going to go away after whatever period of time. Then you see some of the marketshare differences that have been gained in a short amount of time.
And so we deal with a lot of companies, and I see a number of companies actually investing more heavily into...new technologies now, because by the time they’re done with the technologies, it’s going to take 12 to 18 months. And then life will be different again.
Q: What do you think about the fact that there’s been this acceleration in the pace of change that all of your companies have had to respond to?
Richard Hill (Novellus): Improvement by definition is good. No matter what you’re doing. And it’s really measured in speed and quality, and that’s it. No matter what you’re doing, whether it’s an athletic event or it’s running a business, it’s speed and quality of what you’re doing. How good are you at what you do? How fast are you at what you do? And if you can do more and more for less and less until you do everything for nothing, you’ve achieved the ultimate gain in productivity. And that’s all it’s about. It’s a big game. We’re trying to provide more and more. Again, going back to the basics of business, our ability to provide a surplus through becoming more efficient is the key to the success of this whole equation.
Stephen Luczo (Seagate): The object of the system and your business has to be speed and flexibility with quality. It has to be. And the company that doesn’t do that will be left behind. You have no choice. Wall Street is just an example of a system that is stupid that reacted faster. I mean, we’re not complaining about the speed. You have to get a process in place. I think our complaint about Wall Street is, Wall Street doesn’t do fundamental analysis anymore. It has reacted as quickly on the downside as it did on the upside. It still is totally out of whack in terms of someone spending just eight hours a week learning their industry again. Understanding what the competitive advantages and disadvantages are of those companies that participate in an industry.
I mean, there were people who described Seagate, Maxim, Quantum, and WD [Western Digital] as the same types of companies. And every one of them is so phenomenally different in terms of technology ownership, manufacturing-asset ownership, product line—everything about them. Yet they are all put in a category called disk drives. Spend 20 minutes and learn the business. That’s the problem with Wall Street.
Ray Bingham (Cadence): Change is not just a matter of choice, it is a huge opportunity. Change creates the opportunity for businesses to find the seams in the marketplace and exploit those seams with innovation.
Aart de Geus (Synopsys): This is a good time to follow up some issues from earlier. You are all members of the press, and you are part of the show, right? You did story after story of the guy selling the $10 bills for $9 bucks and so on, and it sounded great. And all of us at the table that were running hopefully decent businesses, at least for one microsecond we wondered, “Am I a dinosaur? Am I missing the point?” And now, of course, we are totally clear that we are not dinosaurs. But that’s how it felt.
Q: Amidst the downturn in the industry, the EDA segment is doing very well, and you guys [Cadence and Synopsys] in particular. What’s going on that’s right in EDA?
Aart de Geus (Synopsys): I think first, the downturn is primarily volume-, price-, inventory-related. It’s all the back end. Designs have not stopped. Designs are the core competence. Anybody who cuts down doing designs right now will see a temporary improvement in their bottom line, but will have no products in 18 months. So designs are continuing unabated.
I would argue that this is actually now more of a different business than it was before, because fab capacity is available galore. And so the investments are continuing.
Do you agree with that, Ray [Bingham]?
Ray Bingham (Cadence): That’s exactly right. It’s not only that virtually every company in the technology world—and, I suspect, every person around this table—believes themselves to be fundamentally in the business of product development. And we’re fortunate to be part of that supply chain. But then in addition to that, when it comes to times like this, we have the opportunity, when customers are not going so flat out with the prosperity of record production, to actually consider how things might be done better and how roles might be changed to improve the productivity of everyone involved. So I think that there are some very obvious reasons around new product development in the business that we’re in, and the opportunity that consolidation in a cycle gets anyone to reconsider their business model and how they do things.
Q We’ve talked a lot about the different market sectors that were affected by downturns and upturns. One thing I want to know is about distribution. Are they really the last to feel the pain and the first to recover in a down market?
Jim Bayman (Pioneer-Standard): Well, this downturn started the Tuesday before Thanksgiving about 2:15 in the afternoon. Anyone that got hit before that, hold up their hand. [Laughter.]
But distribution usually is the last to be hit and the first to recover because of the order cycle and the massive customer base that we serve. So I’m sitting here listening. I want to comment about some of the comments made about capital spending.
We’ve increased our capital spending and intend to do it because we have to have efficiency and effectiveness both at the supplier level and at the customer level for us to make a buck. The industry notoriously is very thin on operating contributions, so we don’t have the staying power. So therefore, we need to continue to introduce tools to our operation to make it more efficient and effective, and that is information technology and all the toys that come with it.
So this recession that we are in, or this pause or downturn or whatever you want to call it, has hit us all pretty hard. We’ve had some good months and we’ve had some bad weeks. I’m not sure when this thing is going to end, but certainly the people on the street and the consumers—the folks that have had their gasoline and energy costs increase—are saying that they’re not spending on anything that they don’t have to have. And that is in fact driving a lot of the industry that we sell to down.
Q: At a function I was at earlier in the week, one of the CEOs made what I thought was an interesting comment. He said that it’s not enough when he sells or when his sales force sells something. It’s not enough to say that it will bring efficiency to the customer. They have to actually prove that it will bring more revenue. I wonder how many of you hear that refrain from your customers and what affect it might have?
Jim Bayman (Pioneer-Standard): We in particular hear that if we bring new state-of-the-art technology to the customer so that the customer can make his product better, smaller, more cost effective, cheaper and get it to the market so that he beats his competition, that’s real efficiency and effectiveness. And it doesn’t take long to prove that. They can eliminate 10 or 15 devices with two or three devices. If they can get a leg up on the competition, make it smaller, better, faster, cheaper, it’s not a big proof. And we have some effective ways of proving that quickly to the customer.
And in our differentiated style of business, called demand creation and solutions pu rveying, part of our success has been bringing new technologies to the customer via the people, the applications engineers, but more importantly through the Internet. We have a pervasive Internet offering, and that is how we think the world is going to evolve in the future, and that’s why we continue to add to that capability.
Ned Barnholt (Agilent Technologies): I think the economic justification becomes even more important in these kinds of times. In the last couple of years, people were investing and not really looking at the economic returns as much as they probably should have. I think there’s an obligation for us, as equipment providers or component providers, to talk about what we do in terms of the productivity enhancements, in terms of the revenue enhancements, and in terms of the financial benefits. Not just what a great technology it is.
I think sometimes we get carried away with the technology and forget that there’s some end benefit. So now is a good time to go back and dust off of some of those slides we used a few years ago about the financial justification for things, and tell people why investing in technology will help them. We’ve got to remember our customers are suffering. Whether they are a telecom service provider or a consumer-product company, you know, they’re going through the same issues. So what can we do to help them and their business? As long as we can show that, then we deserve to be in business. If we can’t show them how we can help them be successful, then maybe we don’t deserve to be in business.
Q: Let me ask that a different way. I sort of feel like I’m hearing this conversation from three or six months ago—“Everybody has to do this because it’s going to make them more efficient.” I just wonder if any of you are beginning to doubt that that message has been received, in what I’ll loosely call, for lack of a better term, the old economy. I mean, that’s what Cisco said. They hit the wall. That’s what Sun said. They hit the wall. That’s what Oracle said. They hit the wall. I wonder if there’s any doubt beginning to creep in that. Outside in the real world, how well is the message being received?
Tom St. Dennis (Wind River Systems): I don’t think they hit the wall. I think they hit irrational exuberance, right?
I mean this happens. They are a capital-equipment supplier. They go through cycles. It’s just the way the industry works. In a developing industry like the Internet and all, they just hadn’t gotten to this phase yet. They’re at that phase now. But will we continue to invest in doing it? I think so. I mean certainly we will, but it’s going to find its way where you get the greatest return. We’re going to dust off the slides for what pays back and what doesn’t.
It’s interesting because the work force is younger to some degree, and the work force has come out of this world where the new economy was kind of a given. You know, 15 years ago buying a computer was as much an employee-satisfaction issue as it was a company-moving-ahead thing. Were you a contemporary company if you didn’t have everybody on a computer? I mean were you enlightened or weren’t you?
I think this is evolving to now where there’s a lot of different things going on. People get you to a point where you think you ought to do everything over the Web, and what I think you need to do is everything that is appropriate over the Web.
Q: Do you ever wonder if Internet applications are not the “PC on every desk” of 15 years ago?
Tom St. Dennis (Wind River Systems): At some level it is, and at others, it has an appropriateness. But you can’t sit there and just blanket the Atlantic Ocean with fiber-optic cables. You’ll kill all the fish.
Ray Sharpe (Cookson): In many cases, we’re in those [so-called old-economy] marketplaces, and they have to invest in the Net to be more efficient, to understand their own inventory and to understand where the customer’s inventories are to make themselves more productive, because their margins are tighter than any of the margins at this table. So they have to do everything in their power to invest.
It’s all about returning employed capital. They have to invest and get a return on that. They have to generate cash. I think this exuberance everybody felt was—this whole new way of doing business was going to create revenue models that never materialized or really didn’t have the fundamental basis to materialize. And we have portals coming to us asking us to do things and asking for a piece of the action with no return value. So why would we invest in those portals to do that? You just had to sort your way through it, but they were investing. Sun was giving them processors. The whole world was investing in these things.
Richard Hill (Novellus): I think it’s important to look at the Internet. Everybody says there’s a new economy and an old economy. There isn’t. There’s only one economy—it’s barter. I mean it’s trading and selling. And what the Internet affords you is the ability to do it faster. And to the extent you can do it faster, you can increase the amount of transactions and things that are going on.
And make no mistake, the companies that are dead are the AT&Ts and the Bells, they just don’t know it yet. I mean, they’ve got a little wire, but that’s the only thing they’ve got is the wire. But the transmission, if you just think about it, the difference between your phone and the Internet is the ability. The phone right now, you have this voice, but what everybody doesn’t realize is that Internet is fully capable of transmitting the voice more effectively than this phone, and this phone can’t transmit the data.
So just think of the robustness of the communication, whether it be video, whether it be pictures to grandma, whatever—whether it be advertising to your customer base. The Internet is a vehicle that insidiously has arisen with fundamentally the phone company sleeping.
If we could figure out how to do that with energy—the transmission of energy—what a huge boon to the world. But we haven’t been able to figure out how to do that. You know, our limit today is not finding oil, not finding gas, it’s finding the pipeline that you can route it from where it is to where you need it. And that’s the Internet from a communications and infrastructure standpoint, and I think it’s a hiatus, but I go back to the fact that click and mortar is a huge opportunity for everybody. It’s a huge opportunity for me.
Scott Kriens (Juniper Networks): I was with one of our service-provider customers, and what he said was, “I have a cost line up here and a revenue line down here. The only thing that matters is inverting them soon. It doesn’t matter what the technology is. It doesn’t matter how I do it.” Dropping costs. So, to your question earlier, it was a lot easier to imagine trying to control that part of it, because I don’t have to bet on somebody becoming a pen-computing user when maybe that’s going to be a flop. And I don’t have to bet on streaming video if people are going to just keep driving down to Blockbuster.
But a trend—and to an earlier comment on the whole question of IT, I’ll make a past comment on history and then a guess on the future. If you look back to 1990, the corporations spent about half a percent of their revenues on IT. That ultimately creates a one-and-a-half to 2 percent savings in SG&A [sales, goods, and administration]. So if that’s true, then one of the questions that I heard asked the other day is, “Why wouldn’t IT become 10 percent of revenues?” That’s only asking it to go up three-fold, and it’s gone up seven-fold in the last 10 years. And if you can use IT—whether it’s the network or computer systems, software, or whatever. If I can have two HR people for every thousand employees, or three support people for every 5,000 machines out there instead of 30, I’m just going to keep spending more on IT, or on technology infrastructure I guess.
But you know, there are no multiple economies. The new economy—the new rules are the old rules. Earnings matter, and multiples on earnings matter. And if you can spend more to make that better, then people are going to continue to do that. And there’s give or take, the blips along the way. There’s apparently, look back over 10 years, quite a track record that the more technology that goes into the business, the farther apart those revenue and cost lines get.
Ray Bingham (Cadence): The observation that I would add to your question is that the rate at which a Cisco or an Oracle grows is not a religious question about whether the Internet is a good or bad thing or has a future. The rate at which it grows is a fundamental dependency to the competitiveness of the industries that their customers are participating in. The rate of growth of the underlying economy. The rate of capital formation. The rate that innovation happens in that industry.
To the extent that those things are going faster than I think that an Oracle and a Cisco are going to be able to sustain the growth rates that they had led people to expect, and to the extent that any of those fundamental elements change, you will see a slowing in the growth rate, probably below what those irrationally exuberant investors have talked themselves into believing. And so you do see consolidation periods.
You take a candid snapshot at any particular time, and you’re likely to see somebody with one eye closed and their mouth open. If you take a motion picture over time, you might see sustainable growth rates that, these changes notwithstanding, continue to be pretty attractive over time.
Richard Hill (Novellus): The thing that I look at is that when you look at the opportunity of the Internet—I mean, it’s huge, provided that when I look at the food chain, and whether you’re selling a $1,000 computer or you’re selling a $100 Palm Pilot, the reality is everybody, from an electronics standpoint—from the guy that picks up the shovel of sand to the postman that delivers that product—has to add value. They are only going to get paid for that portion in the value that they add.
And today, the Internet, because of its infrastructure and its capability, is going to add an inordinate amount of value, but only from a standpoint of reducing costs and increasing communication, increasing the frequency and ability to transact more quickly. That’s it. But from a macroscopic level, the key to winning long-term is value-added. If you can give your customer differentiation, whether your customer is that consumer or whether it’s an industrial company or whatever, your ability to give them incremental values so that they get a slightly larger margin is what’s going to determine your success in the marketplace.
Rick Wills (Tektronix): Not only do you have to clean off the slides, you’re going to have clean off the business books. You sell something and it costs you a certain amount to sell, and then you have something hopefully left over. I mean, it’s pretty basic stuff. If you don’t do that, you go out of business eventually.
Q Last year the dominant part of the conversation, other than revolving around the rate of the dot-coms, was “get out of every industry other than the communications industry.” Is that still true?
Tom St. Dennis (Wind River Systems): I think the problem is that you can’t categorize it that way, because people are communicating more to automobiles these days, and consumer electronics products are dependent upon the ability to serve music over components that look like stereo equipment but today are home-gateway devices.
Now communication is pervasive in the industry and in many industries. So people, I think, will use it. They will use it in different ways. Businesses will use it differently than consumers, differently than service providers.
Ned Barnholt (Agilent Technologies): I don’t think you can really excel unless you define what communications is. You look at the computer industry, the communications industry, the consumer industry, there’s not much convergence anymore of technologies. The networking technologies are converging. Many many of the other technologies are converging. So I think if you take communications in its broadest sense, I think the answer might be yes, but if you look back at the individual pieces of it, I think there’s lots of opportunities and lots of different pieces of markets that somebody may not traditionally call communications, but [that] with convergence, are becoming swept under the same technology umbrella.
Richard Hill (Novellus): I think the statement “get out of any industry except communications” is a strategy of only wanting to be in an industry that’s growing at an enormous rate. Managements that can be successful in an industry that’s growing 100 and 200 percent a year are a dime a dozen.
But you look at the businesses of the world that are growing much more slowly, and the differentiation is the management that can be successful in those businesses. And they’re real. And so I think what you have to do is choose your industries.
The most difficult thing in the world, no matter how good you are, if you are a management team that looks at an industry that’s in fact in decline and you make plans every year for it to grow 30 percent. You layer in expenses that cause you to grow 30 percent, and you’re not going to make any money. You’re not going to be successful, and then you’re a lousy manager. But the reality is, all of these businesses are capable of making money, provided they are run appropriately based on what the opportunity is.
Q: What makes all of you such great managers? When I go into your companies, which is where I spend most of my time, your employees all think you’re great. So tell us, how you do it? What is your management style like?
Willem Roelandts (Xilinx): I’ve been working 29 years and I try to just use the basic fundamentals of managing people. And I think that’s what it all comes down to. You know, my basic principle is that I’ve never seen a demoted engineer design a great product. So I think that if you’re mainly living from innovation, from new technology, you have to create an environment of people that are motivated.
And people are motivated because of a couple of things. They like to get recognized as individuals, and I think that they like to work on interesting work. They like to be able to talk with management and have access to management. And yes, they also like to make a little bit of money on the side with stock options. If you put all this together, I think you can create a good company where people like to work.
Aart de Geus (Synopsys): I think a lot of engineers were actually pretty de-motivated by the dot-com era. Not because it wasn’t great and had great ideas and really changed the world, but just because it didn’t quite feel right. For a lot of those people right now, even if their company’s stock is depressed, they feel we’re back in the game.
And to the earlier question, do people come back? Absolutely. The same headhunters that used to sneak into our phone system now call our management—“Do you need any people?” We remember them.
Willem Roelandts (Xilinx): It’s still difficult to find good people though. I’m not so sure that people who move back and forth are really the best choice you have. But you’re right, it’s a little easier to hire nowadays than it was a couple of years ago, especially in the area of IT technology. I think that was probably the most difficult area for recruitment, because everybody needs IT, especially dot-com.
But fundamentally, I still believe, and maybe I sound old-fashioned, that people want to be part of a company that’s successful. People want to be part of a team, part of a group, part of a family. If you can create that environment, people will be loyal, and we put a lot of emphasis on that.
And it should go both ways. Do you know what I mean? It takes a long time to build it, and it’s easy to destroy it. So you have to be very careful, especially in times when there’s a slowdown. That’s when it’s the most dangerous part.
Q: As your people were being stolen last year and the year before, that’s one obvious lesson that you learned. But are there other lessons that you have learned about what it takes to keep people motivated and to keep them staying with your team?
Brian Halla (National Semiconductor): My management philosophy is to surround myself with outstanding people, and then with each reach agreement on our vision and goals, then work to remove the roadblocks so that each of them is successful. In addition, we’ve made a fundamental change, and that is—and I imagine most of the rest of us do the same thing—we don’t let anybody start a program until a customer has signed up for it. So these engineers for the first time are seeing the entire business process and then see the product all the way to the customer’s hands. And it’s incredibly motivating. The stock prices are secondary, if not far distant. The motivator is seeing a product get in the marketplace that’s successful. I think the best engineers are the ones that really get their satisfaction out of seeing their technology get into the marketplace.
Willem Roelandts (Xilinx): I would agree with Brian. A lot of people talk about the impact of stock options and the impact of salary. And I’m not so sure it really has had much of an impact. Today, technical people are pretty well rewarded, and so having more options, I don’t think it makes a big impact.
Probably the best example of that is to look at how many people do a tremendous job in charities where they work for nothing. They are very motivated. They go in weekends. They work long hours, and they are extremely motivated, and they get not a dime for it. So it is more than just money or stock options, although clearly it helps.
Richard Hill (Novellus): One of the hardest places in the world to keep people is in the Bay Area. They can change jobs at lunchtime. We believe in a philosophy of knowledge, skills, and ability. And your ability to succeed in the corporation is a function of knowledge, skills, and ability. We try to create an apolitical environment where people don’t feel that it’s “who you know” rather than “what you can accomplish.” And I think that’s a key motivator. People who see people get promoted that are demonstrated leaders and lead by example with knowledge, skills, and ability—they can say, “I may not like that person, but I can understand why they are in that position.” It tends to breed an environment that people want to stay within.
I don’t think anybody in the Bay Area can be immune to turnover. And the question is, how can you do better than the average? And that’s the best you can hope for.
Ray Bingham (Cadence): If you look at where you spend your energy and you look at where you spend your resources as a company, an enormous amount of it is communicating your message, your vision, and the power of what you do externally. Very frequently, the job of communicating that same message internally is left to a disconnected organization that isn’t even trained in the marketing of a message. I think that especially in the knowledge business, and all of us are involved in the knowledge business in one way or another, where we are competing for that rare one-tenth of 1 percent of the intellect in the technical world, marketing to our own people in a powerful way is indispensable.
Ned Barnholt (Agilent Technologies): We’ve tried to create a culture where people really do believe deep down inside that they are valued. And I think this whole notion of valuing individuals—that every individual can make a contribution, every individual can achieve their potential—is really an important message that you have to go over and over and over again. And it’s one of those things that I spend a personal amount of time on. I go out and talk to a lot of employees. We do Webcasts. We do videoconferences. We have 47,000 employees around the world, so obviously I can’t get everywhere. But I can certainly pick the shots and get to the big sites.
But I think, getting back to this notion of retention, it really comes back to challenging people. People want to be challenged. They want to feel like they are on a winning team, and they want to feel valued. And so this whole notion of, what are the values that you’re trying to create in the company, what is the culture you’re trying to create, I think is at the heart of the retention issues.
It was amazing to me the last couple of years with all the competition from dot-coms, our attrition rate was surprisingly low in the Bay Area. We had people turn away $10 million cash offers to go to a startup because they wanted to stay with the company, because they believed in the company. They believed in the values. They believed in the culture.
Q: How do you deal with it when you wake up tomorrow and your customer has consolidated or they’ve merged? How do you live in this environment where Cahners Research’s data is showing 85 percent of all companies are going to experience some kind of change along those lines in the next five years? How do you live in that kind of environment every day, with your customers and competition constantly changing?
Tom St. Dennis (Wind River Systems): I can’t believe it’s only 85 percent in five years. I would think it would be more like 100 percent in five years. It’s just the realities of any industry like this. It’s developing broadly. Electronics is developing rapidly around the world. It’s going to change a lot. It’s going to change, and everybody hates change, but everybody wants progress. So the question is, how do you get people through it?
Ned Barnholt (Agilent Technologies): I think you have to start with the attitude that you’re valuing change. Change is not something that you don’t like, it’s something that you like because with change comes opportunity. Every change out there, whether it’s a market or a customer or whatever, it’s a new opportunity. It’s a way to change the rules and to do something different.
Tom St. Dennis (Wind River Systems): I’ll tell you though, the thing that I would guess that the successful people in the room have worked hard on is getting the values right, because what persists through all this are values. And boy, I hold onto them harder than I ever have. I work on them harder than I ever have, because the organization is going to go through a lot of different things. The customers are going to go through different things.
What’s going to sustain most companies is to keep employees focused—to do the right things for your customers and to use your values to keep operating the way you need in this environment.
Aart de Geus (Synopsys): I think one of the interesting challenges in these values is that you actually do deal with a totally diverse population. Diverse from a geographical point of view. Silicon Valley, I think, is a great example of that. But I don’t think that one can immediately say that every ethnic group has the same set of background values. I think that’s too simplistic.
And for young managers, they often think, “Oh yeah, let’s push the value thing and everybody has the same sense,” but it doesn’t go over so well. A good management team is a team that is actually made up of a broad diversity that has viewed problems in other parts of the world, be it in Asia or Europe or the US.
And a lot of our customers see that, by virtue of having to acquire companies or design groups just because there’s a shortage of design engineers. So they acquire these groups all over the place, and then somehow by magic, it’s going to start working together, and actually it’s sometimes pretty interesting to watch it.
Willem Roelandts (Xilinx): Even people from different age groups have different values. Baby boomers versus Generation X and now Generation Y—they all have different ways of looking at life, and you have to adapt to that. You have to provide them with some meaning.
Q: And at some point you have to provide them with training too, about which values are absolute musts within your organization.
Rick Wills (Tektronix): Yes, but more important than training, people will read what the leaders of the company, how they act. If you believe that the customer is the most important thing, you can send people to a training session. But if the CEO and the top executive team aren’t acting that way every day, then it’s not going to mean anything. There are different cultures in all areas of the world, but I think there are some things that go to speak to your core values.
This is a big subject. As I was looking around the room, I have customers, suppliers, and competitors in this room, so it’s a real unique situation. But I look at one of my competitors—Ned [Barnholt, of Agilent Technologies] and I are competitors in many areas, but I have a high degree of respect for his company. And wherever I go, Beijing or wherever, there’s a certain respect and value about Agilent, and our company too. There’s a certain image about quality and what that company represents, and that’s been there for 50-some years. That’s why I can get in the door at the [China] Ministry of Telecommunications or Lucent or other places—because there are certain things that are core about our company. Those things don’t change. It doesn’t matter what country I’m in.
Aart de Geus (Synopsys): Actually, I would second that even more so. I don’t think there is room for flexibility. I think that one needs to understand and adapt, but when it comes down to the core, if you start being flexible, you have no core, because certain things are just truth. And if the CEO is not quite sure, and we’re all never quite sure, I understand that, but if the CEO is not quite sure, the next level will be less sure, and so on and so on.
The core is also very strongly attached to the top level of the management because that’s where the role models get set.
Richard Hill (Novellus): I’d like to make a comment about people throughout the world, and I don’t care where I travel—whether you’re in the Bay area, whether it is Beijing, or whether it’s Taiwan, or Singapore, or anywhere in Europe—one of the things is that the fundamental common goal of people is all the same. They want to improve the quality of life for their family. And every decision, whether it be moral, or political, or what they want to eat on a given day, really is affected most by how they believe that’s going to affect their ability to improve the quality of life for their family. And I think that all too often we go with a righteousness in the US of understanding morality and right and wrong. And we have to be extremely careful.
Now, I think we can, by example, improve the quality of life in different countries by giving them a different example, but to impose the moral right wing of the US on the rest of the world is a huge mistake. And I don’t think that’s the purpose of business. Our ability to be able to go into different countries, and recognize the similarities and accept the differences, is the fundamental key to success in a global economy. And it’s not our job to be missionaries.
Q: And that’s the tricky part of all of this, you know. I mean, there are certain things that you say, “Yes, this is core” and “Yes, I’m going to impose our way of doing things.” But you have to reevaluate every time you hit one of those—is it core?
Aart de Geus (Synopsys): But that doesn’t mean applying American management techniques everywhere. That’s not what we’re talking about. The core is sort of a competence against which you do listen very carefully around the situations, and you apply that contrast to those situations. And then obviously you need to be highly sensitive to the fact that there are a lot of backgrounds, ways of viewing life, and so on. But if you don’t have some level of commonality, you don’t have an integrate-able company. You don’t have a common cause.
Ray Bingham (Cadence): So far we’ve talked about your question primarily in the moral direction. And I think that’s very important. The way you can test whether there’s real business value in all of this, however, and that it is actually right as part of a business system, and not something that has been artificially imposed as perhaps a moral—I’m sorry, an American—style of business, is to look at the discontinuities that you go through as a business and see what gets you through.
We talked earlier about taking an engineer off a project and moving him to something else. The reason he is able to get from here to there is because he is grounded in that common vision, that common agreement about what the team is engaged in.
The reason a merger of companies works is because you can create a common vision. You can get agreement about what the combined groups are going to go through. The reason you can get through this kind of a downturn is because people have reached agreement about why we are all in this thing. And yes, it may very well have moral groundings, but it has great practical application if you can get that agreement, and certainly it’s true in terms of worldwide collaborative engineering. It’s that same common vision that gets engineers in Sophia, Tripoli, and Beijing, and San Jose to be able to work together.
Rick Wills (Tektronix): That’s a good point, because today, one of the problems you have in the United States today—downturn, upturn, or whatever—you look at the AEA [American Electronics Association] statistics that they’ve been gathering on how many engineers are graduating, and in some of the skills, it’s less than it was 10 years ago. Yet the technology—the need for them—is much, much greater.
We did one project where the marketing was done in the US, the hardware was done in Japan, and the software was done in India. You have to be able to integrate with teams all over the world to get your job done and use the intellect. Tap into the intellectual capability—wherever it is. So there’s got to be something that binds you together in that case.
Q: One of the reasons that we are here is, because under interesting circumstances this year, we sat down with all of our editors and took a long look at the companies that were out there. We selected all of you because we really believe that you are the movers and shakers of this year, even though we’ve had some tough times as of late. But moving forward, tell me a little bit about your business strategy and what you see happening with your companies and your businesses during the second half of 2001 and into 2002.
Ray Sharpe (Cookson): Our strategy has been trying to build the business around trying to solve our customers’ problems. Trying to add more value-added to the process. We’re a material supplier, and as such, many of materials tend to be viewed as commodities, so to speak. So the further we can entrench ourselves with our customers and offer various solutions and add value to them to lower their end costs, is how we hope to drive our strategy forward. And so far, so good. We seem to be making pretty decent progress with it. We continue to acquire businesses that fit that mode, businesses that bring up adjacent techniques such as technology or geographic expansion or whatever, but generally around materials to a given marketplace.
The second half of this year, we don’t know yet. I mean, I’m not sure the second half is going to be that great, much better than the first half from where I sit, so it’s way too early to call the turn here. We’re going to continue to do what we do best, which is invest in product development, invest in making our people hopefully excited about what we do in our business, and trying to find more products and processes where we can add value to our customers.
Tom St. Dennis (Wind River Systems): It’s a year of kind of reassessment by a lot of people. One thing that I think that will prevail will be product development, so we’ll focus hard on the product-development side of this thing. I think that the Business 101 is, focus on your customers and understand what they value, and get your organization aligned to deliver that. So we’ll do that.
I’m optimistic about the year in terms of what it means for us, because I think that real companies will persevere. I think that people that focus on customers will prevail in their market space, and development and innovation will probably accelerate from where it was this year, and that’s an opportunity for us. So I’m optimistic about that.
Jim Bayman (Pioneer-Standard): Well, the second half of the year, to answer the question, or the difficult question—we really don’t know what’s going to happen. Our sense is that it’s apt to be better than the first half, but that’s a bit of wild speculation. We’re planning on the continuous [training], and the capital investments in our company, and holding the organization together, even at some minor risk to the bottom line, in order to drive forward to the second half and ongoing.
How we really cope with the going-forward strategy is paying attention to customers. That’s basically the reason we’re in business. It’s a people business—it’s not a parts business. It’s people customers, people suppliers, and people employees. Driving yields and productivity is important in our business. We need to continue to drive the information technology to the customer and supplier base, and within our organization, in order to differentiate ourselves from our other competitors, and to in fact eek out a meager living on the bottom line. So that’s fundamentally what I see about the next six months and the rest of this calendar year, and how we are going to attempt to approach it.
Brian Halla (National Semiconductor): One of the common things that everybody echoed tonight was this linkage with the customer. I spoke to the San Jose State double-E department last week, and they said, “What are you doing about research—five-year, six-year kind of stuff?” I said, “You know, as a semiconductor company, we do a lot less R and a lot more D these days.” We do our R with customers, because they’re the ones putting systems in the marketplace, and work with them to solve problems—they at a system level, we at a semiconductor level. And I think you’re going to see much, much more.
We talked earlier about partnerships, and that’s going to be more and more important going forward. The other thing, for National Semiconductor, we’re an analog company, and analog is anything but dead. There’s a resurgence of analog, because access to the Internet is not about 0s and 1s, it’s about real-world information, which is analog. Relative to the economy and the crisis of confidence, not even [Federal Reserve Chairman Alan] Greenspan seems able to overcome the crisis of confidence. But the access to the Internet and the access to corresponding Internet devices will eventually re-stimulate demand, I am confident.
Ned Barnholt (Agilent Technologies): Well, I think if you look at the formula for these kinds of times, it seems to be, love your customers, and get new products out, because that drives demand. Customers love to see new things that can help them in their business. And then squeeze your expenses every other place but R&D and your basic sales activities that support the customers.
I think the challenge that I see for this year is really one of balance, because what you want to do is turn in the best results you can for your shareholders, and at the same time continue to position the company for the long term. So trying to come up with that right balance that will allow you to take advantage of the opportunities on the upside, while in the short term, you’re trying to do the best you job you can.
I’ve made it clear to our shareholders and our analysts...that we’re trying to build a company for the long term. We’re focused on communications and life sciences as two growth industries. We think there’s going to be a lot of opportunities there, but we’re going to go through a cycle or two over the next 10 years.
Scott Kriens (Juniper Networks): I’m certain I’m not smarter than the rest of these guys. And we’re not going to do anything at Juniper different than what’s been said here. I think we’ve been—and Juniper is a much younger company than some—but we’ve been successful. We’ve been tested as to who can go fastest in a straight line. Now we’ll hit the slalom course and see who can handle that, and that’s going to take a different level of management and an additional discipline.
I think the easiest way to retain people, protect focus on customers, protect your employees in cancelled projects—all these things to us have a common thread, which is protect, and even if there is a pause, take the opportunity to upgrade and improve the quality of the team. And if I can get the right people the right jobs, then 90 percent of the rest of this gets a lot easier. And if I can’t, then I’m not smart enough to fix it. So if we can just put the right people in the jobs and put the quality of the community at sort of an ever-higher bar, then they’ll take the same marching orders I think everybody else here has uttered. And that will determine who goes through the turns the fastest.
Aart de Geus (Synopsys): I think [Intel CEO] Craig Barrett said, “You can’t save yourself out of a recession.” And I think what he meant to say was, you have to focus on your differentiation and go as fast as you possibly can.
In our situation, that’s fortunate, because our customers are at the beginning of a five-year retooling cycle, and we have key technology that actually truly helps them differentiate very quickly on how quickly they get new chips. And I think that’s going to be absolutely essential for the next 12 months, because at the end of that 12 months, there will be those that will have new products and those that don’t. And the strong absolutely get stronger. So as far as we’re concerned, we’ll go as fast as we possibly can with our customers.
Willem Roelandts (Xilinx): Well, I’m no smarter than all the other people. Almost everything that we will do has been said. Just one addition I would like to make, and I may sound a little bit apologetic, but I think that the down cycle is also having a silver lining. When things grow rapidly, you hire everybody who comes into the door almost. The downturn is a good opportunity to clean up some of the problems you created in the past, and typically 5 percent of the people you hired are wrong hires. And when things are growing rapidly, you never have the time to fix that. So now there is the time.
I think we are spending enough time on management training also, because we need quality management. It makes my job a little easier. But also I think quality of management really defines the quality of the company, by and large, and I’m not talking just about the CEO. On the contrary.
I think this opportunity that you have in these slow times—the history is there; it shows that sooner or later we will recover, and we’ll be back to running again as quickly as we can. In the meantime, do all the things that these other gentlemen have said.
Ray Bingham (Cadence): Well, the focus that I would draw is that for all of us, I believe the first half, with the exception of some fine tuning, is going to be very much like the second half.
In my case, Cadence is in the business of enabling the design of electronics products on a worldwide basis. And while our tactics may be a little different, as customers and as partners to those customers at a time like this, the strategy really isn’t any different. Run the business enabling that product-development process.
Our view is that this is an opportunity, very much as Wim [Roelandts] says, that you have to actually demonstrate in a concrete way the value you can deliver to your customer. Not only on the productivity side, but much more importantly, in helping them develop new and additional revenue streams by helping them create innovative new products and innovative new processes for bringing products to market.
Rick Wills (Tektronix): Obviously, the biggest challenge today is the uncertainty in the marketplace and the general slowing in the technology sector. Tektronix is positioned well to benefit, long term, from the inevitable shakeout that occurs during a slowdown, but we need to focus on execution. We need to get products to customers and ensure that we balance the inevitable reductions in operating expenses with the need to invest in our future—namely in key product development and in other key areas to grow the company. It is tough to see through the downturn and uncertainty, but I believe we can emerge stronger than we went into this thing if we do.
