TI’s Way of Strategies – Formation & Execution

For a company to stand still and continually prosper even after facing several downturns in its career of 80+ years, and still move swiftly with strong commitment and confidence, its strategy has to be right and rock solid possessing sustainable competitive advantage, and of course it has to be an early mover in everything it does with a determined point-of-view. That’s exactly what my close observation tells me about Texas Instruments. What’s more important in the formation of a strategy is – how much early it is spotted and how swiftly it is acted upon. And even more important is its implementation and fast execution. At times strategies can go wrong, but if executed fast enough, one can quickly smell the results and change it as appropriate; however one needs to have the knack of sensing that direction.

In my analysis of TI from the days of its incorporation, I have found that it’s very apt in early anticipation of future movements and directions and moulding itself (before anyone else does) in delivering on those. Its strategies are motivated by external opportunities and fuelled by internal resources and capabilities built up over time; hence TI generally has mixed strategies. Look at their 41000+ patents and timings of some of the prominent ones among them, and then some of the key developments based on those patents, even the developments based on external licenses. Credit goes to the visionaries in this company.

[TI’s R&D Kilby Center]

After replacing vacuum tubes with transistors, TI was quick in spotting the opportunity of ICs in re-shaping the electronics industry. While serving for U.S. Defense organization’s electronic need, it also built up semiconductor IC manufacturing capability to avail that massive opportunity in consumer electronics. Today, microelectronic manufacturing is one of the strong core competences of TI that fuels many of its businesses. TI spends about 12.5% of its revenue in R&D that includes basic research, new product ideas and other far fetching environmental areas such as smart grid and healthcare; to keep an eye on major future innovations and developments.

Let’s look at some of the strategic moves TI has taken over a long course of time, and it would be interesting to watch at the speed of their execution. While working for U. S. Defense Department, TI tasted its first fruits of electronic success with silicon transistors, portable radio, ICs, first computer for U. S. Air Force, calculator, and the like. Looking at a bigger opportunity in semiconductor electronics, they negotiated with IBM in parallel for the later to start using TI’s electronic components into IBM computers. In 1970, microprocessor chip was developed. Within ~10-15 years of IC’s birth, the semiconductor industry had grown to multi-billion-dollar industry, and TI being an early mover into this business created a prime spot for itself. TI entered into all sorts of businesses involving microprocessor controlled devices which included industrial applications as well as consumer electronics. It even introduced onetime favourite digital watches (at $20) in 1976. It also came up with speech synthesizer devices for educational aid. It opened semiconductor manufacturing facilities across the world; to start with in 1957, its first facility outside U.S. in Bedford, U.K. to supply semiconductor based electronics to Western Europe and then in other parts of the world.

By the time competition had moved in, around 1975, TI had to face price war, particularly by Bowmar Instruments in calculators and then other Asian manufacturers of consumer electronics. It started losing market in calculators, watches, LCD etc. While it was losing these businesses, it also lagged in fulfilling orders for semiconductor chip manufacturing (the cash cow). Some of TI’s strategies didn’t work as desired, mainly due to pricing; price skimming strategy didn’t work anymore. In late 1979, TI introduced home computer (at $1400), but soon lost the business due to price war, and in 1983 TI made its first loss instead of profit. The semiconductor slump during early 1980s added to the misery of TI when it had to reduce its work force by ~10000; financial losses continued until 1985. This is when TI spent no more time in realizing that it needed to focus on high margin businesses attached to its technological edge and core competences.

In the leadership of Jerry Junkins, from 1986, TI took a major strategic turn. It re-focused on its innovation spree and manufacturing competence to focus on high-margin custom microprocessors and DSP (Digital Signal Processing) cores instead of low-margin chips. TI also initiated a method of earning royalties on its patents’ licenses, initially by filing suits against DRAM manufacturers who were selling DRAMs without obtaining licenses from TI. Junkins also initiated collaborative businesses (called B2B) with major players such as Hitachi in Japan, Sun Microsystems, General Motors, L.M. Ericsson, and Sony and alliances with Acer, HP, Canon and governments of Singapore, Italy and others. By 1993, TI’s revenue again swelled with almost 60% increase in per employee revenue, led by custom and speciality segment of electronic components and also software. During this time, TI had noticed a major lucrative business in DSP area and invested heavily into building this capability. In 1994, it came out with the first single chip multimedia video processor (which can be termed as an SoC that combined multiple DSP and RISC chips). DSP became another core competence of TI gaining major market share and expansion. While TI acquired many DSP companies, it sold its low-margin memory business to Micron. Smart move!!

TI continued to keep its top position in analog products market and entered the new millennium with a solid, slightly less than $12 billion revenue and ~22% profit margin. The company sustained the worst downturn of semiconductor industry in 2001-3, although with falling share prices. In the new millennium, its focus turned towards wireless handsets and DLP (Digital Light Processing) technology. That is when TI convinced Nokia to use its DSP chip as core in cell phones before Nokia became the champion of cell phones. Rich Templeton led TI into the cell phone revolution through its wireless phone chips. In a crude sense, we can say – when Intel pushed TI out of computer chip business, TI spotted cell phone opportunity which later started pushing down PC market in general, i.e. like remaining ahead in the game! Sometime later, I will talk more about TI’s reaping of rich benefits from wireless and cell phone (smartphone) business until it recognized, well in advance, the maturing smartphone business and coming out of it, as usual, much in advance than anyone else.

In wireless area, TI continued with increased focus on embedded processors for sustainable growth. And continued focus on its core, analog semiconductor business. It will be interesting to watch TI’s moves in MEMS business, the next big thing for IoT (Internet of Things) business. TI is top revenue maker in MEMS business, ST being the main rival. In CES 2014, TI’s new DLP chipset technology kept the eyes rolling. This DLP chipset makes it possible to develop pocket-able projectors with great lumens and resolution; Sekonix will be coming up in this year. DLP chip invented in TI can have an array of up to 8 million microscopic mirrors. Used in office projectors, cinema projections, IMAX, TVs, mobile displays and several other industrial, automobile, medical and security applications, DLP technology is one of the major strategies of current times in TI. I will talk more on DLP technology later. And also about power management as TI keeps close watch on smart grid, energy harvesting and the like developments in the near future.

Okay, I would like to wrap up this article here with some closing remarks. Most of the times, TI has been successful in microelectronics semiconductor manufacturing (its core competence) and its related diversification. That has led TI to build other core competences as well, such as analog and embedded processing, DSP, DLP and so on. As TI’s sharp focus on upcoming big things and speedy build-up of expertise in those areas has always crowned it with victory, it would be interesting to watch how it plays in IoT revolution as that will infiltrate most of the verticals such as home & consumer, automotive, aerospace, healthcare, industrial, military, retail, security & surveillance, entertainment and so on. And TI already retains a dominant position in MEMS business. Rich Templeton is a sharp, forward looking leader; it appears that he has his strategy set for the new era of “number of devices per person” instead of out dated “number of persons per device”.

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