Point two is that the world went offshore for assembly and testing, which is low-tech—i.e., you can do it anywhere. I’m talking about injection molding with a high-tech plastic: you basically melt it and spill it in mold.
When the industry went overseas, the East gained a core competency in assembly and testing. America was behind offshore. Not only was I running at a disadvantage on labor costs, I was running against management cultures in the Far East that had developed Statistical Process Control for the backend, which is unheard of in America. I finally got pushed over the brink by my board to abandon the all-American strategy.
You got pushed by your board?
Yes. They were all over me.
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The board drove the decision?
The board were old National Semiconductor guys; they put plants all over the world, they knew exactly how to do it, and they were all over my ass. I kept pushing back on them. I was making 23 percent profit.
What did they want me to do? Walk across the street and say,
“Congratulations four hundred of you. You’ve done a great job and we’ve made record profits. But record profits aren’t enough. I’m laying you all off so I can move offshore to make more profit.” Then I’d look at the board and say, “Why don’t one of you guys do that speech, because I’m not particularly up for it.” In retrospect they were absolutely right. If you think about it economically, an all-American strategy is stupid. You can’t swim upstream against the world economy.
It just doesn’t happen.
Countries can’t do it, let alone companies. Now that I’ve analyzed it more, the all-American strategy is contrary to my basic economic principles. And those principles are that there are no safe harbors—
the only safe harbor is competency. Competency at doing something.
Knowledge.
Knowledge is equal to profit. It’s very simple. When you can’t justify something by being confident and knowledgeable and when somebody else can perform the same task more cheaply and efficiently, you’ll let them do it and focus on what you know and do well.
The second issue was after having attacked the fat, arrogant major companies successfully, we went ahead and did exactly what they did: we read our own newspaper clips.
I mounted all those clippings on my wall and got arrogant. In manufacturing we improved from 1983 quality to 1985 quality by 1992. The other guys, whose asses we had previously kicked, went from 1985 to 1992 in real-time. And all of a sudden I woke up one day and Intel and AMD were no longer patsies.
Our manufacturing was behind. That was a cultural problem because our attitude at manufacturing was, “We are Cypress. How can we be behind?” They couldn’t tolerate saying, “We’re behind, we’re getting beat, and we’ve got to change.” We brought in a change agent.
Now that you’ve seen almost every semiconductor company struggle at some point, is there one that you admire most?
Micron Technology, because I’m a manufacturing and technology guy. It’s a sucker answer not to say Intel because they in effect
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invented the personal computer and da-da-dah. But the fact is I like Micron.
I had the all-American problem; solving the all-American problem was simple. I’ll never forget it. One of my vice-presidents said,
“Even if we do everything to improve efficiency, we’re going to be behind our competition by X million dollars a year, and we can’t afford it any longer.”
I remember my head switched with a click. “Okay, you’re right.
We’ve got to change.” So after five years, we changed. In the middle of a quarter, we peeled 50 testers in assembly molds, one at a time and made sure that they were up and running seven days later in Thailand. I can now make a RAM cheaper than any Japanese company. Maybe Micron can make a RAM cheaper, maybe not. But I believe we can do it cheaper than anybody. The Japanese have been pushed back out of the SRAM business.
How much and since when?
Since 1985. That was the crisis and it required a transformation of the corporation into a worldwide company—a rededication to bench-marking and learning in manufacturing. And now, we’ve diversified a lot of stuff. In seven days, our first RAM will take off from our Bangalore, India design center. We’ll find out if they can make RAMs. We trained them in our Mississippi design center. We’re now diversifying everything.
It seems like you’re in a pretty attractive industry—lots of demand, lots of barriers to entry.
It’s true. In one way, it’s brutal. It’s brutal in that the difference between a ridiculous plus or minus two percent learning curve com-pounded over three years will put you out of business. But once you can live in that world and you require change and compare the rate of change to competitors, then what you say is true and it’s getting more true.
Right now we’re buying back $50 million worth of our own stock, because Wall Street doesn’t understand that. The herd has gotten afraid and they’re running in the wrong direction. A year from today, if you call me up, I will have bought $50 million worth of our stock, and I will have sold it back to Wall Street for $100 million. I will have made $50 million because I understand the industry and they don’t.
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Knowledge is profit. They’re going in the wrong direction, big time. The industry this year is $146 billion. Five years ago it was fifty.
Five years before that it was seventeen. Five years before that it was about four. The industry has gone from four to $150 billion in fifteen years. In 2000, we’re looking at $350 billion—2.7 Intels, 2.7
Cypress’, 2.7 Japan Incs., and 2.7 Koreas.
You can imagine. By the year 2005 the number is $850 billion, a factor of six over the next ten years. I’m closer to the six times bigger industry, adding five of our industries on top of what we’ve got, than I am to when Cypress started. And I absolutely agree with you that semiconductors are becoming king. We’re headed to the era of the chip industry sucking up the systems industry—a good chunk of it.
The first to go was the personal computer industry. I see the chip industry growing astronomically and I see the manufacturing component of the industry being very important.
What will dominate the semiconductor industry in the future? SRAMs, flash memory?
I’ve stopped looking at the market in terms of products. If you take ten-year looks at the semiconductor industry, what’s important?
Change.
The main thing is to be able to make millions of transistors, hook them up and make something useful out of them, and you have to be flexible enough to use different technologies and make different kinds of products. Cypress will have one or more drivers of our technology so that if the SRAM business softens for some reason, we won’t be left out in the cold from having a specialized little niche.
We can take sand and make a million transistor things. That’s what we’re about. And today they contain SRAMs. They might not in the future. That’ll be a gradual, half-decade kind of change. It won’t be precipitous. We won’t go out of business if SRAMs wind down but we might hurt for a couple years.
You’re a wealthy guy. What keeps you at Cypress?
There are three options for me. I’ve been asked to run for Congress and I turned it down; I was asked to run against Norm Manetta, that lame-duck Democratic master of pork. Why would I want to be a wealth allocator with no value-added—or negative value-added—
when I’m a wealth creator?
Why would I want to commute to Washington, D.C., and deal
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with political morons when I can run a semiconductor company? I only made a paltry $40 million starting Cypress. Why don’t I do it right? Why don’t I, for example, take my $40 million, fund a company myself, do an IPO with a $200 million valuation and own 60 percent of the stock? That’d be better—a Bill Gates kind of number.<
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I don’t know. I already have enough money to buy a better car than the two-year-old Honda Accord that I have, but I really don’t want to. If I had a better car I would feel terrible about beating it to death commuting and frying it in the parking lot. I don’t use most of my money so I don’t need more money. I’ve got plenty of money. Why don’t I get into the big leagues? Why don’t I do what George Fisher did? He’s a Ph.D.; he’s a smart guy. I can wait for one of the names that the world recognizes, Kodak, to get sick and then take it over to see if I could turn it around.
Well, Cypress is going to be a $2 billion company in 2000, and we’re going to be five or more billion in 2005. Right where I am I can run a big company if I stay in the chair for ten more years. Also, it’ll be my kind of folks here. I don’t have to come in and make the company unsick; I won’t have to deal with layers of bureaucrats or having my department managers going to New York.
Then what’s the big job? Being President of the United States?
Think of the corporal punishment. Assuming I could do that job, which I can’t, I’d be forced to campaign all over the United States, enduring mudslinging fights with competitors about nothing and kowtow to the press.
Or to special interest groups.
Right. Having to make life-threatening decisions: will I take money from tobacco or not? Will I take money from the American Trial Lawyers association? Americans hate politicians and they’ve come to hate the President. Look at the President of the United States and the snide implications and the rude questions he receives. It’s awe-some that he should have to put up with that kind of crap, but he does. He allows it and they hate him. Generically. Not just Clinton, but they hate him.
People around here don’t hate me. They understand what I stand for; they choose to be here. The ones who choose to be here, I work with; we have fun. That’s why I’m here. Then you have to formalize why other people are here. That’s the statement of purpose, which is a boil-down of the core values. So then you say, “Am I here to be a
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static-RAM guy?” If you don’t want your life’s work to be something that might be obsolescent in five years, no. “Am I here to be a chip guy?” Yes. “Do we make the best chips in the world?” Yes.
Tell us about the role of culture, values, and vision in your company.
I found out something about corporate culture, à la Collins and Porras [Jim Collins and Jerry Porras, authors of Built to Last: Visionary Habits of Successful Companies]: the importance of having a set of core values.
They describe a methodology for establishing a company’s core values and culture. In the past core values have been turned over to the witch doctors, touchy-feely psychologists, earth-shoe wearing, global-driving, granola-eaters that want self-esteem to be the major aspect of every corporation. Self-esteem here is defined as, “Speak nice, talk nice, everybody happy all the time,” right until you go out of business.
Collins and Porras reduced that core value-setting process to an objective methodology which people can buy into. You realize, in retrospect, that cultures are real, they’re powerful, and they work. One of our core values in this corporation is, “We tell the truth.” It’s an absolute core value. If you want to get your ass blown out of this company all you have to do is be a slimeball and a liar and a politician and you immediately are persona non grata.
When did vision and values become important to Cypress?
After 1992. This was a remedial action as part of the 1992 “figure-out-who-you-are” situation. Another problem we had in 1992 was that our original business plan clearly specified that we were going to be a high-tech company. Our chips were going to be smaller, faster, and better than the other guys’ chips, and we were going to take our competitors on and blow them up. But we lost the edge in 1992
because at $250 million in revenues we niched out and stalled. The niches had created such daunting manufacturing, sales, and marketing tasks that our people were stretched extremely thin.
Even though our employees worked their butts off, they couldn’t do a quality job. The fact that I demanded a quality job meant that I was butting heads with people all the time. The fact that we weren’t doing well financially meant that I couldn’t afford the resources to build resources. We fundamentally had to change niches.
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People said, “If we don’t make the fastest chips in the world, then who are we?” I kept presenting the business plan over and over and over. I kept showing them what we were making, why we were making it, who we were competing against, what we were doing and I kept getting feedback that we didn’t have a vision for the company.
And it really pissed me off because I kept telling them what we were going to do. But it didn’t substitute for a vision. In my mail one day came a paper from this prof that I never heard of at Stanford, Jim Collins. The paper rattled around in my briefcase for two months and then I read it. There is a line in Apocalypse Now. Have you seen it?
Yes.
Heavy flick. There’s a line where Marlon Brando talks about a vision, a piercing vision where he suddenly saw through the clouds, and he said, “It was like a diamond bullet hitting me right between the eyes.”
I read the paper and I said, “This is it. This is the diamond bullet.”
Previously, I had gone into this touchy-feely realm with witch doctors. When you tread in this land, it’s loaded with witch doctors.
All of a sudden I saw an objective, bottoms-up, fact-knowledge-reason method for saying who we are. It was “valueless” in that it didn’t espouse one set of values or another. You didn’t have to pick up Tom Peters’ book which says that if you do A, B, and C you’ll be a successful company—worthless things like that. With the Collins and Porras book, you define who you are, how great companies know who they are and who they are not. That’s really the big message in the book.
So, our five core values of the corporation are:
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We’re here to win.
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Cypress people are only the best.
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We “do what’s right for Cypress.”
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We make our numbers—no excuses.
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We make what we sell—we’re not a storefront.
Core value number one: We’re competitive, we enjoy the game.
Our competitors like Andy Grove are people who can’t be disregarded—we made that mistake once. Jerry Sanders as well. We blew him off as a salesman. Guess what? Jerry’s still there and AMD is now a $2 billion company.
In 1993, one question arose when the finance group came back
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and said, “We’re not here to win. How can we be winning when we just got our ass kicked in 1992? We’re not winning, we’re recovering.
We don’t know if we’ll recover to preeminence, or if we’ll just be another company.” The fact was, our then-current performance was different from one of our core values. So, we rephrased the value as
“We will not tolerate losing.”
If winning is not a core value, then you just say “Shit happens.”
You bumble along with mediocre performance until you get acquired or get fired. But if winning is a core value, then you have a visceral reaction that you’re violating a core value, like somebody’s lying to you. If you know someone’s lying, you don’t tolerate it. You call them on it right there on the spot. We will not tolerate losing.
Looking at our core values, can I say we do them right all the time? Absolutely not. Are there people who don’t work hard at Cypress? Probably a few. What I can tell you is that not working hard isn’t too well tolerated here. On the third night that someone walks out at eight o’clock, he will approach the person who left at 4:30 that previous afternoon, and ask, “Hey. Why don’t we get this done tonight before we leave together?”
The culture it
self works on that. This is how we handle a dissonance between actual performance and core values. Our products and technologies compete head-on with the best in the world. The fact that we’re right there with those big Japanese companies, their accomplishments per person—it’s extraordinary.
Conventional wisdom states that the semiconductor industry will consolidate like the automobile industry and will be left with a Big Three. Bullshit. There are 200 companies, and the last time I looked, the important, sexy companies that everybody was talking about were all new ones.
Like NexGen, and C-Cubed.
NexGen—Jerry Blowhard [Sanders of AMD, which acquired NexGen] is the primary guy discussing the consolidation of the industry, yet it’s he who has to bail his company out by purchasing a startup. He bought it at a ratio of 45 times revenue. I love it!
We create an environment for individuals to win in business so we recognize not teamwork, but individuals. I have a vision which may be as screwed up as the previous one, but I have come to conclude that the P&L statement and the balance sheet are the most powerful tools of measurement we have. I really believe that. All of
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my little bonus plans are dramatically inferior to the P&L statement, which is time-tested and breadth-tested.
With little bonus plans, you find out, you’re incentivizing things you didn’t need to incentivize. For example, you feed hungry people to make yourself feel better that hungry people are fed. The downside is you incentivize not working. By subsidizing not working, pretty soon you find out that, when at first you intended to feed and help a few hundred people, you’re now supporting millions. I see those unintended consequences around here all the time. So I decided to keep it simple: P&Ls that everybody understands and can deal with.
Core value number two: Cypress people are only the best. This is the first thing that everybody tells me in every meeting. Cypress people are smart and work hard. We don’t allow things to languish. We tell the truth. We make no excuses. We value detailed knowledge, logic, and reason.
In the Company of Giants Page 5
