Green looks greener

FROM ELECTRONIC NEWS 5/4/07—“EXECUTIVE INSIGHTS”

Green looks greener

By Ed Sperling, Editor-in-Chief—Electronic News, 5/4/2007

Brian Halla, chairman and chief executive of National Semiconductor, sat down with Electronic News/Electronic Business to talk about his company’s future direction, public policy and what’s wrong with the electronics industry. What follows are excerpts of that discussion.

Q: What’s next for National?
Halla
: The first several waves of semiconductor success were all driven by three megatrends, which are very straightforward—the age of the computer, the age of the connected computer and the cell phone. We’re all getting graded by how well we respond to those megatrends. The age of the computer—well, who cares? And nobody asks their neighbor what kind of chip is in their cell phone. It’s not important. It’s become commoditized. That’s why there’s such a unique difference between what’s happening at Dell and what’s happening at Apple. Apple is going after the ‘cool factor’ and they’re up and to the right, and at Dell they’re cost-cutting. So much for those megatrends. So what are the new megatrends? Look all around us. Energy.

Q: Where does National play in that department?
Halla
: The new Tesla (electric car) is a major transition. I called Detlev (Kunz, senior VP of National’s Power Management Group) and asked him what we have in the Tesla. He said we have a reference, an LDL and a simple switcher—three parts. The salesperson meets me up there and says, ‘No, I’ve seen the motherboard and you guys are all over that. I’ll send you the bill of materials.’ She sends me the spreadsheet and there’s a ton of parts. Detlev was only talking about the power management. The volumes in the Tesla are not going to excite me in terms of the revenue of the company. But if National could somehow be part of the solution to leaving hydrocarbons and going to electric, that’s pretty exciting.”

Q: Is it a huge savings in power consumption?
Halla
: It does take quite a lot of hydrocarbons to charge a battery, but it’s still twice as efficient as a Prius at 116 equivalent miles per gallon versus 53. So now, where can we go from there? How about gas stations having big banks of solar panels that fill capacitors so that when a Tesla drives up, you just take a capacitor and empty it. Then you have to refill that capacitor with solar power, and after you run out you fill them from a pipe. But there are lots of ways to skin a cat. Just being part of decreasing our world’s dependence on energy would be pretty exciting.

Q: A lot of these ideas are interesting, but they don’t turn into products at all sometimes, and at other times it’s a slow process. Why?
Halla
: It happens a little faster in analog than it used to happen, but the predominance of thinking in the industry is way too incremental and not enough big-picture. Even in our own industry we tend to limit ourselves. There have always been four standard linear categories, and there will always only be four—amplifiers, data converters, interface and regs and references, or power management. The other day our guys were working in the lab with a data converter—24 bits—but we didn’t have an amplifier to drive it. The amplifier we had was from a competitor, and it was failing. I told them my youngest daughter could come up with a new product here. They said, ‘Right, a 24-bit amplifier.’ I said, ‘No, a 24-bit amplifier married to a sigma delta A-to-D on one chip.’ It’s an amp to digital converter. They said, ‘Who’s going to get the revenue? The amplifier group or the data converter group.’ We tend to limit ourselves that way.

Q: This sounds like the old silo problem.
Halla
: National is still fighting those silos, even though we’re doing everything we can to get people to think in subsystems. But their subsystem typically ends after they’ve scraped together all of their products from their silo because we’ve been so revenue driven.

Q: Will your silos have to merge with other silos in other companies, rather than just internally, to really make this work?
Halla
: There’s a lot of that already. We’re partnering with Altera and Xilinx and doing drivers for FPGAs. That’s a natural. They would like to have that capability, but they don’t. More and more [of] that will happen, so the answer is yes. For our own silos, we’ve successfully turned our company toward signal path instead of the three product groups that support it. When I say signal path, I’m talking about the front-end amplifier, the data converter and the interface all in one product pitch. You can tweak the number of bits at one end and get a different product at the other. All of our sales training was done at a signal path level, and all of our collateral is done at a signal path level. So we’ve started to make the turn.

Q: Does this mean you’re relying on the technology to break down the silos, not the corporate side?
Halla
: It’s a combination of both. The technology is breaking down the silos because it wants to go forward and the limitations are on one silo are sitting next to it on another.

Q: How extensive are your partnerships outside the company? It seems that everyone is tied into someone else’s ecosystem these days.
Halla
: We’ll partner with almost anyone who isn’t a competitor. But going back to the new drivers of the industry—health care, energy and security—you don’t have to be a real big thinker to see we’re immersed in technology that can fix so many of the problems today. We can put image sensors on bridges to identify faces of terrorists.

Q: Do we need to hit a crisis before the technology sells, though?
Halla
: That seems to be the big catalyst. It has to hit something that hits $7 billion before we’re interested in curing it or solving it. Katrina was $7 billion. The avian flu is $7 billion. There is technology that can offset the energy crisis, too. Base stations today are about 1 percent energy efficient. China is moving directly to LED lighting right from the get-go, and LEDs are starting to show up on cars. That’s infinitely more efficient than incandescent.

Q: Does all of this mean your R&D budget is going up as a percentage of revenue?
Halla
: Yes, we’re currently around 18 percent.

Q: What’s the company’s comfort range for R&D spending?
Halla
: Combined SG&A and R&D of 30 percent.

Q: So what’s the goal here? There are a number of companies in the analog space, and National had a reputation for playing at the commodity end of the spectrum.
Halla
: That was the old days. We don’t play in that market anymore, much to the disappointment of many customers, because our service, supply and logistics are head and shoulders above everybody else’s. Now we’re shying away from the commodities. Even the commodities we make, we won’t bid in a contract. Those are the ones that turn peak-to-trough to peak-to-red ink. We’re at the bottom of the current cycle at 60 percent gross margin with 50 percent utilization in our factories. We’re half filled, and we’re just under gross margin.

Q: So what do you do with the rest of that capacity?
Halla
: We’re going to use it when this thing turns.

Q: But will it be used internally, or will you open it to others?
Halla
: We’ll fill it internally.

Q: What process node are you running at?
Halla
: For CMOS, 0.18 (microns). It’s a combination of biCMOS, high voltage and super low power. All of our process technology is fairly proprietary.

Q: Looking several years down the road, what changes in your business?
Halla
: What’s happening in the environment is really widening the sweet spot of what we do. The power management stuff is obvious. We dominate power management. Everybody’s going green or longer battery life. The other three of our product lines are all leveraged from low-power beginnings. With amplifiers, we’ve got data converters from 1 gigasample up to 6 gigasamples and from 850 milliwatts up to 1.5 watts. Nobody has anything like that. That’s the lowest power consumption data conversion in the industry. Nobody has anything like that. It was an instant hit at $100 ASP (average selling price). What we’ll continue to do is invest in power management and leverage that in each of the product lines. Interface is all about busses and clean clocks so the signal you turn out over fiber 100 meters away is the same thing you sent out. That business continues to get better as data speeds go up and the amount of data over bandwidth increases with video.

Q: Let’s change topics. You’ve been quite vocal about public policy in your previous role as chairman of the Semiconductor Industry Association. What’s wrong with public policy when it comes to the technology industry?
Halla
: I don’t believe politicians represent their constituencies anymore. I think they think they do, but if you want debates on H1-B visas, there are claims they’re to get lower-cost workers. No. It’s just as competitive for a Ph.D. from Iraq as one down the street. You have to pay them competitive wages. There’s nothing inexpensive about these people. The irony is that people think they’re taking jobs away from Americans. They’re actually creating jobs. If you look at the industry, Andy Grove would be sent home to Hungary today. Yahoo! was started by Jerry Yang from Taiwan. Google was started by Sergey (Brin) from Russia. eBay was started by Pierre Omidyar. The way we caught up with Russia in the space race was to use Werner von Braun’s Redstone rockets because our Vanguards blew up on the launch pad. Not only could we not do it again today. We didn’t even do it then. It was a bunch of foreign nationals we brought in. So did they create jobs or take jobs. They created hundreds of thousands of jobs.

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