Hello, Mr. Chips
Texas Instruments' Tom Engibous is betting the company on a couple of tiny silicon processors.
If you were living anywhere in the United States or Canada in the late seventies or early eighties, you probably know what a Speak and Spell is. The educational toy, made by Dallas-based Texas Instruments, was a rectangular piece of brightly colored plastic that contained a keyboard and actually spoke to children: It gently corrected them when they spelled words incorrectly and praised them when they were right. With its preternaturally calm, synthetic voice, it helped teach a generation of kids how to spell. But the Speak and Spell, which was first sold in 1978, was much more than a child's plaything. What made it work was a dazzling silicon-chip technology that was years ahead of its time. "We had created an integrated circuit that mathematically modeled the human voice," says Gene A. Frantz, a senior fellow at Texas Instruments who helped invent it. "It was a significant breakthrough."
It was something else too: an advance look at the technology that would later drive many of the industrial and consumer products of the Internet Age. In the late nineties it would propel TI, after more than a decade as an also-ran, to the vanguard of global digital technology. At the heart of the Speak and Spell was a type of integrated circuit that was the predecessor of what in the 1980's would come to be known as the DSP, or digital signal processor. It had evolved from TI's defense-related radar business. The difference between it and a microprocessor chip like Intel's Pentium is that the Pentium performs the many tasks required to run a PC, while a DSP does one basic thing: It helps instantly translate information such as sounds and images from the analog world. DSPs run most mobile phones—TI's chips are now in six out of every ten mobile phones sold—and are the brains behind such new-wave applications as high-speed digital modems, digital cameras, Internet audio players, and personal organizers like Palm Pilots. "DSP as a technology has now become the driver for the semiconductor industry and the whole dang world," says Will Strauss, the president of the Arizona-based electronics market research firm Forward Concepts. "Everybody is trying to get into it."
And it is TI's clear mastery of DSP technology—and its dominance of the exploding DSP sector of the semiconductor market—that has put the company in a position not entirely unlike that of chipmaker Intel twenty years ago. TI introduced the DSP for commercial use in 1982. In the past four and a half years, TI's chairman, president, and CEO, Thomas J. Engibous, has bet the entire company on the twin premises that DSP-related technology will drive the so-called post-PC era and that TI will lead it. He has sold off most of TI's old-line businesses and in so doing dumped billions of dollars of relatively easy revenue for a chance to bet on the digital future. "We are convinced that we are providing the fundamentals for the Internet Age," says TI's chief financial officer, William A. Aylesworth. "We are at the center of it."
It wasn't always that way. TI, in fact, has looked more like a lumbering, slightly befuddled giant over the past twenty years than the hungry, bleeding-edge tech company that now believes it can dominate the next decade in the semiconductor business. Texas Instruments, of course, is the company that brought you the Computer Age. TI engineer Jack St. Clair Kilby's groundbreaking work on the integrated circuit chip in 1958, for which he won the Nobel prize last year, was the basis of the single most important technology in the digital revolution. And in the late fifties TI, which was the first company to market an integrated circuit chip, looked a lot like a millennium-era dot-com: Its stock rose 4,600 percent on news of its breakthrough product. Like many other successful companies of that time, TI diversified, adding new businesses: defense electronics, radar and missiles, memory chips. In 1974 it stunned the world again with the introduction of the handheld calculator, and by the eighties it was in the business of building computers as well.
The problem was that by the nineties TI was doing a lot of things, but few of them well. It had led the semiconductor industry as late as the mid-eighties, only to lose its market dominance to fierce competitors like Intel and Samsung. Its defense businesses were slow growing and bureaucratic; its computers never took off. In the decade ending in 1995 the company had grown at a somnolent 7 percent a year, light-years behind the big technology high-fliers like Dell and Microsoft. In 1994 TI had about $10 billion in revenues and a deeply embarrassing market value of a mere $8 billion.
It was around then that the transformation began. TI chairman Jerry R. Junkins started it, revving up the sleepy defense-and-government-contract culture and selling off its oil-field services business (on which the company had been founded in the thirties) in 1991 and its midsized computer business in 1992. Though many of TI's businesses were slow, stodgy, and non-tech driven, the company had somehow retained the underground mentality that had caused it to be a leading technology company in the first place. For reasons no one could quite fathom, and in the absence of any real market to speak of, TI engineers like Gene Frantz and the old Speak and Spell gang had been allowed to labor away at DSPs at TI's Houston unit for years. "We had a skunk works here in Houston," says TI senior vice president Michael J. Hames. "The average age was between twenty-five and thirty. It was like a start-up culture, passionate beyond common sense."
The Houston unit became ground zero for TI's DSP operations, which in the mid-eighties made up a mere one percent of TI's revenues and consisted mainly of sales either to big telecommunications companies or to the military for radar and sonar applications. The first year the DSP unit broke even was 1987. Few people in the world, outside of TI's Houston unit, believed in DSPs. Still, it was a culture that no amount of mediocre management seemed to be able to kill.
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