TI's Rock Amid Rubble: CEO Tom Engibous already led Texas Instruments through one turnaround. Now, he's determined to do it again—even if it means taking on Intel - Technology - Statistical Data Included

Chief Executive, The, Nov, 2001 by Alan Goldstein

A sluggish global economy, a probable U.S. recession, and weakening consumer confidence are pushing high-tech electronics manufacturers to the brink of what could be the industry's most troubled year yet. Worse still are the implications such a precipitous decline could have on the semiconductor business, which depends on a healthy electronics market. Demand for semiconductors, the critical building blocks of all kinds of intelligent electronics products, is expected to decline as much as 36 percent this year, from $226 billion in 2000.

Amid this freefall, one chief executive is seeking to establish his company as the market leader--overtaking Santa Clara, CA-based semiconductor powerhouse Intel Corp. Indeed, Texas Instruments' Tom Engibous spies within the tech sector rubble the seeds of regrowth.

By moving against the grain, Engibous expects to position his company for an inevitable turnaround. "Many people change their entire strategies based on very well-understood--not predicted--economic cycles," says the CEO, a native Midwesterner known for his determined, even-handed management style. "Long-lasting, successful companies use times like these to strengthen their positions versus their competitors."

Engibous, 48, who joined the company shortly after earning a master's degree in electrical engineering from Purdue University in 1976, says he's intent on making TI the most valuable and important chip company of the decade. That puts TI head-to-head with mighty Intel, which rose to prominence during the personal computer revolution of the 199Os.

With a market capitalization less than a third of Intel's--in mid-September, TI's market cap was $41.6 billion versus Intel's $149.9 billion--TI has a long way to go to dethrone the reigning chip king. Still, the investment community is taking Engibous' lofty goal quite seriously.

Banking on Building Blocks

"I think TI does have a chance to [out-value Intel] within five or 10 years," says Dan Niles, a semiconductor analyst at Lehman Brothers. "My prediction is TI will be the most valuable, unless Intel does something dramatic to change its profile," such as make a major acquisition or take a bold step into a new market on its own.

To achieve its goals, TI is taking a page from history and applying established tenets to fluctuating economic conditions. A pioneer in electronics--the company invented the electronic handheld calculator in 1967--the Dallas firm has positioned itself for the future by relying on lessons from the past. "A lot of things shouldn't change," Engibous says, referring to TI's strategy. In fact, the two-plus decade TI veteran, the son of a research scientist, is sticking to a business plan he put in place five years ago. That's when he inherited the CEO post and set out to remake the company around a new flagship product, the digital signal processor chip.

The tech sector has been cyclical for 30 years, Engibous asserts. TI isn't about to reduce its commitment, therefore, to spend $1.6 billion in research and development, the same amount earmarked last year when chip demand was heavy. In Engibous' view, digital signal processors, or DSPs, are the key ingredient for many kinds of digital communications, from broadband networks to next-generation mobile Internet appliances that could define a post-PC era. Currently the leader in DSP production, the company is banking on a renewed demand for electronics, especially Internet devices, that, in turn, will stimulate chip demand once the economy improves.

A Steady Leader

For decades, TI was regarded as a lumbering giant, known for brilliant engineers and poor marketers. The pioneer of the electronics industry had grown bloated with also-ran divisions that made everything from notebook computers to tactical missiles.

After TI Chairman Jerry Junkins died suddenly from a heart attack in May 1996, the board moved to speed up a reinvention of the company. To lead the change, the directors bypassed higher-ranked executives and turned to Engibous, then the head of the semiconductor group. The directors felt the company's future was in chips and that Engibous would hasten the transition. They also felt he was young enough to lead the company for a long time.

Junkins, who had a relatively relaxed management style, had been grooming the focused Engibous as a successor for several years. "The only thing people didn't expect was that they would have to execute the process significantly sooner," a TI spokesperson said at the time.

Engibous transformed the business at a furious pace. Within two years, he had sold off nearly all divisions unrelated to digital signal processors and analog chips, which convert sensory information such as images and sounds into the digital language of computers.

So far, the bet has paid off. Wall Street bid up TI stock more than 16-fold at the peak of the tech boom early last year. Although the whole market has slid back since, TI's share price has held better than that of most rivals. Having traded as high as $93.81 in March 2000, TI was trading at around $26 at press time.