On the edge - The Back Page - Brian Halla, chairman and CEO of National Semiconductor - Company Business and Marketing

Electronic News, Nov 4, 2002 by Ed Sperling

Brian Halla, chairman and CEO of National Semiconductor, sat down with Electronic News for a wide-ranging discussion on everything from the future of his company to stock options and globalization. What follows are excerpts of that interview.

Electronic News: What's your opinion of doing business in China?

Halla: That's the most capitalistic nation on the face of the Earth. Risk/reward is alive and well over there. And of all the markets, the Chinese market is the healthiest. Their cell phone market is growing at 25 percent a year, and there's a lot of wealth over there. The manufacturers in Taiwan, which we know as ODMs, are all in China as a superset of ODM and EMS. If you go in with a spec and say you want a product that's better than a competitor's, they'll do the tooling, provide the software, surface mount and plastics.

Electronic News: But one of the challenges U.S. companies face when they set up manufacturing plants in China is that most of the goods they produce are not consumed by the Chinese market. Is that your experience?

Halla: Last quarter, 48 percent of our bookings were from Asia and 30 percent of that was from China. We do well in Korea with Samsung and in Taiwan, but over 50 percent of Taiwanese manufacturing has moved to China. There are three things I see in China. First, there's opportunity because it's a big market and it's growing rapidly. Second, there's opportunity to do manufacturing there. Third, it's a huge threat because there's a phenomenal brain-drain going on. Our politicians are questioning risk/reward and stock options. China is saying, 'We love you.' In 1990,70 [percent] to 80 percent of foreign nationals who came to this country stayed. Now it's going the other way. One company had 550 expatriates--400 from Taiwan and another 150 from the United States. They go for a cut in pay, but they get stock options with no capital gains, housing, Mandarin lessons and private education for their kids.

Electronic News: It sounds like you have a strong opinion about stock options. What should be done here?

Halla: I went and tried to convince the New York Stock Exchange that they were being overzealous on this issue. I've never gotten such a blank stare. Stock options go to the rank and file, but these guys said, 'That's your problem.' Were we wrong to have options? [Federal Reserve Chairman Alan] Greenspan still says technology is vital to our growth. But we're all supposed to be crooks. My mother called and said, 'Aren't you embarrassed being a CEO?' I told her, 'If they caught four murderers would they change all the laws on murder?'

Electronic News: Let's change topics. What happened to the recovery?

Halla: We had a recovery in May. We had demand pick up. In Asia, they had demand pick up. But we have driven all confidence out of the market and the consumer.

Electronic News: But wasn't the early part of the recovery due largely to inventory bounce?

Halla: I don't know. During a technology boom we always overbill. In the next boom, we will also overbill. But I'm convinced that sometime in the next nanosecond the market will go up. The good news about the dot-coin bubble is that it stimulated the next boom. A glut has the neat effect of dramatically decreasing the price of new technology. We're going to see new applications that were never before possible.

Electronic News: How much of this is based on the PC?

Halla: The PC is fundamental, but it plays a secondary role. This is about everything from digital cameras to security and surveillance devices. The PC will not be the thing that drives the next boom, but it will play a role.

Electronic News: So when do we get to the next boom?

Halla: We are there already. In 1974, manufacturing drove the technology boom. In 1984, it was the PC boom. In 2000, we connected together all the PCs. We went from the United States to worldwide, not including Asia. The fourth technology boom will involve billions of users. We're going from half the houses in this country with PCs to thousands of devices per user. The beauty of a technology bust is there's a lot of cool technology for a very low cost, and you can converge it for a very low cost. That is the positive.

Electronic News: Given the fact that this industry is cyclical, what does that mean for the next boom's aftermath?

Halla: The next post-boom will produce the worst recession ever.

Electronic News: Back on the positive side--and at this point we all need some positive news-can you help define how this convergence will work?

Halla: The world will be divided into cyberspace, immediate cyberspace and what we call clients, which can be anything from MP3 players to PCs. If you put a handprint on something, it goes into cyberspace. But your biometrics will be on a card. Smartcards will have 2Gbytes of memory with a camera. You'll download data onto the card that you don't want out there in cyberspace.

Electronic News: So that's immediate cyberspace?

Halla: Yes.

Electronic News: We've heard that referred to as edge technology. Is that the same?