DALLAS -- After two consecutive money-losing years, Texas Instruments rebounded in 2003 thanks in large part to its dominance in making chips that drive more than half the world's mobile phones.
Still, while TI's stock price nearly doubled last year amid an overall rebound in the semiconductor business, it remains well below its dot-com heyday. The job of continuing the recovery will fall to chief operating officer Richard K. Templeton, 45, a 23-year TI veteran picked to succeed longtime CEO Thomas J. Engibous, on May 1.
Templeton said TI can extend its leadership in cell phones by making ever more powerful chips under the technology known as Open Multimedia Applications Platform, or OMAP, which allows the devices to act as tiny camcorders. He hopes to position TI to benefit from new technologies, such as digital television sets.
On the cost side, Templeton vows to maintain a practice of sending some engineering work overseas. TI has 1,000 workers in India and plans next year to move its operations there to a new building that could house 2,500.
Templeton recently spoke with The Associated Press about TI and the recovery in the semiconductor industry.
AP: You've had a couple good quarters in a row. Is the semiconductor industry slump officially over?
TEMPLETON: The marketplace actually bottomed at probably third quarter of 2001 and it's been very slow growth coming out of that. But clearly, starting in third quarter of 2003, TI, as with the industry, we saw very good growth in the third quarter and turned in a very good fourth quarter. I think people would declare that that bottom is done and we're in a recovery or growth phase right now.
AP: What's driving the improvement?
TEMPLETON: You've got a bunch of pretty important trends. Wireless is a great marketplace because there are new phones, exciting phones, there are people replacing (old phones), there are new buyers, there's lot of vitality and a lot of growth in that space. Broadband to the home and through the home is a significant trend, and our broadband business is growing very rapidly. Finally, this whole space of digital consumer ... a wide variety of terrific new products. Probably the most visible being the digital TV space. There's also a wealth of audio players, professional audio, video players, early signs of digital radio.
AP: You made an announcement recently about OMAP processors for smartphones. What's that going to mean to the average consumer?
TEMPLETON: A year ago, the industry started paying attention to camera phones and color displays. People went out to get a new phone wanted a color display or they wanted a camera display phone or they liked some of these fancy new ring tones. They tended not to care about plumbing underneath it, which we get all focused on.
To me, two great examples of what OMAP 2 will enable is you'll have cell phones that are capable of being full digital camcorders; you'll have cell phones that are capable of receiving and displaying digital TV ... it can become an even more powerful 3D gaming platform. The power of that platform is that it lets our customers innovate.
AP: Do you assume cell phones are going to get cheaper and you've got to produce chips at a lower cost?
TEMPLETON: There will be, just as there is today, a wide spectrum of price performance. Yes, at the low end we have to keep driving down the cost of an entry-level, voice-only cell phone. In that case, the cost will continue to come down. Our role is to integrate more (functions) on a single chip. But you also see middle and high-end phones where customers want more capability, they want to access the Web, they want to be able to get data, they want to be able to take pictures, they want to be able to play games or view TV. We've got to have a broad price performance range in our products.
AP: Are calculators becoming so different from the rest of your business that TI would ever consider shedding that business?
TEMPLETON: We've got the semiconductor business, the sensors and control business and ... the calculator business. Both sensors and controls and calculators add to the financial performance of TI. As long as they continue to add to the financial performance they're good members of the family.
AP: Are there other important innovations inside TI?
TEMPLETON: There is some really exciting and fun stuff that's done with real-time signal processing. You make washers and dryers quieter and more power-efficient. You can make MRIs in the medical industry smaller, more portable. ... Clearly the TV space is the one that gets more copy and print media right now than anything. It's simply the best picture and it's breathtaking in terms of what we can put up on a screen.
AP: What's happening with utilization at your chip-making plants?
TEMPLETON: With the growth in the second half of the year, utilization has continued to increase, which is what you'll traditionally see in a strong and improving market.
AP: TI kept spending on research & development during the slump. Where do you see that going this year and longer term?
TEMPLETON: We've never been better-positioned coming out of a downturn because of the decisions that were made over the past four and five years. ... We've announced research and development spending for 2004 would be around $2 billion, that's up from, I believe, $1.7 billion last year. The commitment to invest in the right capacity, the right technologies and right new products has served us well, as we saw in second half of 2003, and we think they're going to continue to serve us well as we go forward.
AP: You've got operations in India with about 1,000 people there. How much will you increase that operation?
TEMPLETON: We've been in India since 1984. The press, because of the things going on in the broader U.S. industry, tries to put that under this label of outsourcing. We've been a global company for virtually the life of the company. We've got design and development locations throughout the world, be it Japan, be it Germany, be it the south of France. India is a great development location. The reason is very simple: We go to places where we can get great people and great engineers. We've had that facility for 20 years now in India. Will we continue to grow it? Yes. But most of our research and development locations will continue over the longer term to have growth as well.
AP: Like Mr. Engibous, you've spent your entire career at TI, you've followed a path similar to his. Are you going to be a different type of CEO?
TEMPLETON: We've worked together a long time. We've got a lot of pretty basic common beliefs about competing, winning, about the way to do business from an ethics and values type of company that we like to work for and what success means and the importance of customers. I think you're going to find the traits or the things we value being pretty similar. That's been a source of why we've gotten along well. We've got some pretty common views to what winning means.
AP: What's going to be your most immediate challenge?
TEMPLETON: The same challenges we have today, which is winning with our customers, executing our new products and continuing to gain share and run the company well.
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