Texas Instruments Inc. Business Information, Profile, and History

Company Perspectives:

TI has set a vision to become a premier electronics company providing world class leadership in digital solutions for the networked society--a society transformed by personalized electronics, all speaking the same digital language, all able to communicate anytime, anywhere.

History of Texas Instruments Inc.

Texas Instruments Inc. (TI) operates as one of the largest semiconductor manufacturers in the world. By 2001, it had a leading market share in the analog chip and digital signal processor (DSP) industries. In fact, over half of the world's wireless phones have TI's DSPs. The company's main businesses include semiconductors, which accounted for 87 percent of revenues in 2000; educational and productivity solutions; sensors and controls; and digital light processing (DLP) products. While TI experienced record financial results in 2000, the company's profits were significantly impacted during 2001, when the semiconductor industry experienced one of worst downturns in its history.

Origins

The history of Texas Instruments is intimately related to the history of the American electronics industry. TI was one of the first companies to manufacture transistors, and it introduced the first commercial silicon transistors. It was a TI engineer--Jack Kilby--who developed the first semiconductor integrated circuit in 1958, and TI's semiconductor chips helped fuel the modern electronics revolution. (Kilby won a Nobel Prize in 2000 for his contributions.) After a disappointing performance in the 1980s, the corporation abandoned its long-held, but unfulfilled dream of becoming a consumer electronics powerhouse in favor of specialization in high-tech computer components.

Texas Instruments' roots can be traced to Geophysical Service, a petroleum-exploration firm founded in 1930 by Dr. J. Clarence Karcher and Eugene McDermott. Headquartered in Dallas, Texas, Geophysical Service used a technique for oil exploration developed by Karcher. The technique, reflection seismology, used underground sound waves to find and map those areas most likely to yield oil. When Karcher and McDermott opened a research and equipment manufacturing office in Newark, New Jersey--to keep their research and their seismography equipment operations out of view of competitors--they hired J. Erik Jonsson, a mechanical engineer, to head it.

Focus on Defense Contracts, Electronics: 1940s-50s

Toward the end of the 1930s, Geophysical Service began to change its business focus because of the erratic nature of the oil exploration business. The company was reorganized: an oil company, Coronado Corporation, was established as the parent company, and a geophysical company, Geophysical Service, Inc. (GSI), was formed as a subsidiary. McDermott and Jonsson, along with two other GSI employees, purchased GSI from Coronado in 1941. During World War II, oil exploration continued, and the company also looked for other business opportunities. The skills GSI acquired producing seismic devices were put to use in the development and manufacture of electronic equipment for the armed services. This experience revealed marked similarities in design and performance requirements for the two kinds of equipment. Jonsson, encouraged by GSI's expansion during the war, helped make military manufacturing a major company focus. By 1942, GSI was working on military contracts for the U.S. Navy and the Army Signal Corps. This marked the beginning of the company's diversification into electronics unrelated to petroleum exploration.

After the war, Jonsson coaxed a young naval officer named Patrick E. Haggerty--a man of exceptional vision--to join GSI. At a time when many defense contractors had shifted their focus from military manufacturing to civilian markets, Haggerty and Jonsson firmly believed that defense contracts would help them establish GSI as a leading-edge electronics company. They won contracts to produce such military equipment as airborne magnometers and complete radar systems. Haggerty, who was general manager of the Laboratory and Manufacturing (L&M) division, also set about turning GSI into a major electronics manufacturer. He and Jonsson soon won approval from the board of directors to build a new plant to consolidate scattered operations into one unit. The new building opened in 1947.

By 1951, the L&M division was growing faster than GSI's Geophysical division. The company was reorganized again and renamed General Instruments Inc. Because its new name was already in use by another company, however, General Instruments became Texas Instruments that same year. Geophysical Service Inc. became a subsidiary of Texas Instruments in the reorganization, which it remained until early 1988, when most of the company was sold to the Halliburton Company.

The next major change came late in 1953, when Texas Instruments went public by merging with the almost-dormant Intercontinental Rubber Company. The merger brought TI new working capital and a listing on the New York Stock Exchange and helped fuel the company's subsequent growth. Indeed, the postwar era was a heady time for Texas Instruments. In 1953 alone, TI acquired seven new companies. Sales skyrocketed from $6.4 million in 1949 to $20 million in 1952 to $92 million in 1958, establishing TI as a major electronics manufacturer.

An important factor in TI's astronomical growth in the 1950s was the transistor. In 1952, TI paid $25,000 to Western Electric for a license to manufacture its newly patented germanium transistor. Within two years, TI was mass-producing high-frequency germanium transistors and had introduced the first commercial silicon transistor. The silicon transistor was based on research conducted by Gordon Teal, who had been hired from Bell Laboratories to head TI's research laboratories. Teal and his research team had developed a way to make transistors out of silicon rather than germanium in 1954. Silicon had many advantages over germanium, not least of which was its resistance to high temperatures. The silicon transistor was a critical breakthrough.

It was Patrick Haggerty who was convinced that there was a huge market for consumer products that used inexpensive transistors. In 1954, TI, together with the Regency division of Industrial Engineering Associates, Inc., developed the world's first small, inexpensive, portable radio using the germanium transistors TI had developed. The new Regency Radio was introduced in late 1954 and became the hot gift item of the 1954 Christmas season. The transistor soon usurped the place of vacuum tubes forever.

During all this, Haggerty and Mark Shepherd Jr.--then manager of TI's Semiconductor Components division and later chairman of TI--had been trying, with little success, to persuade IBM to make TI a supplier of transistors for its computers. But Thomas Watson Jr., president and founder of IBM, was impressed with the Regency Radio, and in 1957 IBM signed an agreement that made TI a major component supplier for IBM computers. In 1958, Patrick Haggerty was named to succeed Jonsson as president.

From 1956 to 1958, Texas Instruments' annual sales doubled from $46 million to $92 million. In 1957, TI opened its first manufacturing facility outside the United States--a plant in Bedford, England, to supply semiconductors to Britain and Western Europe. In 1959, TI's merger with Metals and Controls Corporation--a maker of clad metals, control instruments, and nuclear fuel components and instrument cores--gave TI two U.S. plants as well as facilities in Mexico, Argentina, Italy, Holland, and Australia.

The Integrated Circuit: 1958

One of Texas Instruments' most important breakthroughs occurred in 1958 when a newly hired employee, Jack S. Kilby, came up with the idea for the first integrated circuit. The integrated circuit was a pivotal innovation. Made of a single semiconductor material, it eliminated the need to solder components together. Without wiring and soldering, components could be miniaturized, which allowed for more compact circuitry and also meant huge numbers of components could be crowded onto a single chip.

To be sure, there were manufacturing problems to be overcome. The chips had to be produced in an entirely dust-free environment; an error-free method of "printing" the circuits onto the silicon chips had to be devised; and miniaturization itself made manufacturing difficult. But Texas Instruments realized the chip's potential and, after two years of development, the company's first commercial integrated circuits were made available in 1960. Although the electronics industry initially greeted the chip with skepticism, integrated circuits became the foundation of modern microelectronics. Smaller, lighter, faster, more dependable, and more powerful than its predecessors, the chip had many advantages; however, it was expensive--$100 for small quantities in 1962. But integrated circuits were ideally suited for use in computers. Together, chips and computers experienced explosive growth.

Semiconductors quickly became a key element in space technology, too, and early interest by the military and the U.S. space program gave TI and its competitors the impetus to improve their semiconductor chips and refine their production techniques. Under Jack Kilby, TI built the first computer to use silicon integrated circuits for the air force. Demonstrated in 1961, this ten-ounce, 600-part computer proved that integrated circuits were practical.

Chip prices fell to an average of $8 per unit by 1965, making the circuits affordable enough to use in consumer products. Another important breakthrough came in 1969, when IBM began using integrated circuits in all its computers. Soon the government was no longer TI's main customer, although defense electronics remained an important part of its business. Within ten years of Kilby's discovery, semiconductors had become a multi-billion-dollar industry. Early on, TI's management anticipated a huge world demand for semiconductors, and in the 1960s the company built manufacturing plants in Europe, Latin America, and Asia. TI's early start in these markets gave the company an edge over its competitors.

In 1966, Haggerty was elected chairman of TI's board when Jonsson left to become mayor of Dallas. Haggerty had already challenged a team of engineers to develop a new product--the portable, pocket-sized calculator--to show that integrated circuits had a place in the consumer market. In 1967, TI engineers invented a prototype hand-held calculator that weighed 45 ounces. It was four years before the hand-held calculator hit the stores, but once it did, it made history. Within a few years, the once-ubiquitous slide rule was obsolete.

Entering the Consumer Electronics Industry: 1970s

In 1970, TI invented the single-chip microprocessor, or microcomputer, which was introduced commercially the next year. It was this breakthrough chip that paved the way not only for small, inexpensive calculators but also for all sorts of computer-controlled appliances and devices. TI formally entered the consumer-electronic calculator market in 1972 with the introduction of a four-ounce portable calculator and two desktop models, which ranged in price from $85 to $120. Sales of calculators soared from about 3 million units in 1971 to 17 million in 1973, 28 million in 1974, and 45 million in 1975.

Despite this early success, TI was to learn many bitter lessons about marketing to the American consumer. Even early success was hard won. Bowmar Instruments had been selling a calculator that used TI-made chips since 1971. In 1972, when TI entered the calculator market and tried to undercut Bowmar's price, Bowmar quickly matched TI and a price war ensured. TI subscribed to learning-curve pricing: keep prices low (and profits small) in the early stages to build market share and develop manufacturing efficiencies, and then competitors who want to enter the market later will find it difficult or impossible to compete. But after a few years, competitors did begin to make inroads into TI's business; by 1975, as increased competition in the market led to plummeting prices; the calculator market softened, leading to a $16 million loss for TI in the second quarter.

However, TI rebounded and again sent shock waves through the consumer-electronics world in 1976 when it introduced an inexpensive, reliable electronic digital watch for a mere $19.95. Almost overnight, TI's watches grabbed a large share of the electronic watch market at the expense of long-established watch manufacturers. A little more than a year later, TI cut the price of its digital watch to $9.95.

When low-cost Asian imports flooded the market in 1978, however, Texas Instruments began to lose its dominant position. TI also failed to capitalize on liquid crystal display (LCD) technology, for which it held the basic patent. It had not anticipated strong consumer demand for LCD watches, which displayed the time continuously rather than requiring the user to push a button for a readout. When sales of LCD watches exploded, TI could not begin mass-production quickly enough. The company's digital watch sales dropped dramatically in 1979, by the end of 1981 TI had left the digital watch business.

Meanwhile, in TI's mainstay business, semiconductor manufacturing, orders for chips became backlogged. Texas Instruments had spread its resources thinly in order to compete in both the consumer and industrial markets, and worldwide chip demand had soared at the same time. Despite these problems, TI grew at a rapid rate during the 1970s. Defense electronics continued to be highly profitable and semiconductor demand remained strong, buoyed by the worldwide growth in consumer-electronics manufacturing. The company reached $1 billion in sales in 1973, $2 billion in 1977, and $3 billion in 1979.

Mark Shepherd was named chairman of the board upon Patrick Haggerty's retirement in 1976, and J. Fred Bucy, who had worked in almost all of TI's major business areas, was named president and remained chief operating officer. Haggerty continued as general director and honorary chairman until his death in 1980.

In 1978, Texas Instruments introduced Speak & Spell, an educational device that used TI's new speech-synthesis technology, which proved quite popular. That same year, TI was held up as Business Week's model for American companies in the 1980s for its innovation, productivity gains, and phenomenal growth and earnings records.

In mid-1979, TI introduced a home computer that reached the market in December. Priced at about $1,400, the machine sold more slowly at first than TI had predicted. In 1981, sales began to pick up, though, and a rebate program in 1982 kept sales--and sales predictions--very strong. In April 1983, TI shipped its one millionth home computer.

Challenges in the 1980s

Suddenly, however, sales of the TI-99/4A fell off dramatically. By October, TI's overconfident projections and failure to predict the price competitiveness of the market had driven the company out of the home computer business altogether. By the time the 99/4A was withdrawn from the market, TI's usual competitive-pricing strategy had reduced the computer's retail price below the company's production cost, causing TI's first-ever loss, $145 million, in 1983.

TI's consumer electronics never managed to become a consistent money-maker. The company was often accused of arrogance--of trying to find mass markets for new TI inventions rather than adapting its product lines to accommodate customers' needs--and TI's aggressive price-cutting was often insensitive to dealers and customers alike. In addition, TI's pursuit of both consumer and industrial markets often caused shortages of components resulting in backlogged or reduced shipments.

After experiencing its first loss, TI found regaining its former footing difficult. A slump in semiconductor demand during the recession of the early 1980s made TI's heavy losses in home computers particularly painful. Cost-cutting became a high priority, and TI trimmed its work force by 10,000 employees between 1980 and 1982. In addition, management decided that its matrix management structure was strangling the company and so began to modify the system to revive innovation. Although the company's engineers continued to lead the semiconductor field in innovations, increased competition both in the United States and overseas meant that technological superiority was no longer a guarantee of success. The company recorded yet another $100 million-plus loss in 1985.

TI President Fred Bucy was roundly criticized for being abrasive and autocratic, and the disappointments of the early 1980s hastened his departure. In May 1985, Bucy abruptly retired and Jerry Junkins was elected president and CEO. Junkins, a lifetime TI employee with a much cooler and more conciliatory management style, proved a popular chief executive.

TI's aggressive defense of its intellectual property rights--the exclusive use of the patented technological developments of its employees--highlighted activities in the late 1980s. In 1986, TI filed suit with the International Trade Commission against eight Japanese and one Korean semiconductor manufacturers who were selling dynamic random-access memories (DRAMs) in the United States without obtaining licenses to use technology that belonged to TI. TI reached out-of-court settlements with most of the companies but, more importantly, demonstrated that infringements on its patents would not be tolerated. Royalties from these decisions proved an important source of revenue (over $250 million annually) for TI.

In late 1988, Texas Instruments announced plans to join Japan's Hitachi, Ltd. in developing 16-megabit DRAM technology. Although this decision came as quite a surprise to the electronics industry, given TI's successful Japanese subsidiary and its manufacturing plant there, TI explained that the move was necessary to spread the mounting risks and costs involved in producing such an advanced chip.

Back in 1977, TI had boldly set itself a sales goal of $10 billion by 1989; not long after, it upped the ante to $15 billion by 1990. The company actually entered the 1990s some $9 billion short of that extraordinary goal. After watching its share of the semiconductor market slide from 30 percent to a meager 5 percent over the course of the decade, Junkins took a decisive step. In 1989, the CEO inaugurated a strategic plan to radically reshape Texas Instruments, dubbed "TI 2000." A key aspect of the plan was to loosen the corporation's traditionally tight corporate culture and encourage innovation. This fundamental change was intimately linked to a shift in manufacturing focus from cheap, commodity-based computer chips to high-margin, custom-designed microprocessors and digital signal processors. For example, in 1989 TI embarked on a partnership with Sun Microsystems Inc. to design and manufacture microprocessors, sharing engineering personnel and proprietary technology in the process. TI garnered vital contracts with Sony Corporation, General Motors Corporation, and Swedish telecommunications powerhouse L.M. Ericsson. The company promoted its repositioning with new business-to-business advertising. From 1988 to 1993, the specialty components segment increased from 25 percent of annual sales to nearly 50 percent. In 1993, Junkins told Business Week that TI was "looking for shared dependence" in these partnerships. He also hoped to parlay technological gains into mass sales.

Rebounding Under the TI 2000 Plan: 1990s

Under Junkins, TI also increased its global manufacturing capacity through a number of joint ventures in Europe and Asia. A 1990 partnership with the Italian government allowed the shared construction expenses of a $1.2 billion plant. In 1991, the firm joined with Canon, Hewlett-Packard, and the Singapore government to construct a semiconductor facility in Singapore. By 1992, TI had forged alliances with Taiwanese manufacturer Acer, Kobe Steel in Japan, and a coterie of companies in Singapore. Texas Instruments planned to invest $1 billion in Asian plants by the turn of the century. Joint ventures with Samsung Electronics Co., Ltd. and Hitachi, Ltd. in 1994 split the costs of building semiconductor plants in Portugal and the United States, respectively. TI 2000 also set a goal of increasing the company's high-margin software sales five times, to $1 billion, by the mid-1990s.

Although Texas Instruments recorded net losses in 1990 and 1991, the company's sales and profits rebounded in 1992 and 1993. Profitability, in terms of sales per employee, increased dramatically from $88,300 in 1989 to $143,240 in 1993. In 1992, the firm won the coveted Malcolm Baldrige National Quality Award in manufacturing and adopted the Baldrige criteria as its quality standards. Wall Street noticed the improved performance: TI's stock price more than doubled from 1991 to early 1993.

The firm continued to develop new products, invest in strategic alliances, and divest non-core, slow-growth businesses. In 1994, it launched the multimedia video processor, the first single chip processor to become available commercially that combined multiple parallel DSP and RISC chips. The following year, it won both the prestigious Singapore Quality Award and the European Quality Award. It was during this time period that the company began to focus on DSP chips, which could convert analog signals into digital form in real time. Eyeballing the market as a lucrative growth avenue, TI invested heavily in this area. During the 1990s, DSP chips began to be used in such as products as modems, cellular phones, PC peripherals, and television sets. By 1997, TI controlled 45 percent of the market.

Reshaping TI: Late 1990s and Beyond

While TI worked hard to get itself back on track in the 1990s, it continued to face hardships. During 1996, the price of its memory chips dropped by nearly 80 percent. Then, during an overseas business meeting in May, Junkins died suddenly of heart failure. Long-time TI employee Tom Engibous took over as president and CEO and stepped up the company's acquisition and divestiture plan. In 1997, several of the firm's business units were sold including Defense Systems & Electronics, Mobile Computing, Software, MulTIpoint Systems, Inspection Equipment, the Mold Manufacturing businesses, the Chemical Operations department, the Telecommunications Systems division, and the Power semiconductor unit. The company also made several key acquisitions including Intersect Technologies, Amati Communications Corp., and GO DSP Corp.

When questioned about the company's rapid movements in a 1997 Electronic Business article, Engibous commented "a tragedy like that--referring to Junkins' death--causes you to spend time reflecting. We concluded that what we were doing was in the right direction, but we thought we needed to do it at a much more rapid pace." As such, the company continued to acquire firms related to its DSP focus including Spectron Microsystems, Adaptec Inc., Oasix Corp., and Arisix Corp. TI also sold its memory chip business to Micron Technologies Inc. for $880 million.

The acquisitions continued into the following year. TI added Butterfly VLSI Ltd., Integrated Sensor Solutions, Telogy Networks, ATL Research A/S, Libit Signal Processing Ltd., Unitrode Corp., and Power Trends to its arsenal. The firm continued to develop new products as well, including a DSP chip that facilitated high-speed Internet access. Along with leading the DSP market with a 48 percent share, TI held the top position in the analog semiconductor market for the second year in a row. All in all, TI launched 191 analog products in 1999, nearly seven times more than it developed in 1996.

TI entered the new millennium on solid ground. The company's financial performance appeared to be back on track with revenues of $11.8 billion and profits of $2.7 billion. During 2000, the firm purchased Toccata Technology ApS, Burr-Brown Corp., Alantro Communications, and Dot Wireless Inc. It also formed a partnership with Qualcomm Inc. in which both companies were allowed to supply integrated circuits for all wireless standards without infringing on patent rights. TI partnered with four China-based manufacturers to develop and distribute wireless handsets and consumer electronics. The company also teamed up with Imax Corp. to develop digital projectors for movie theaters as well as IMAX theaters. Under the terms of the deal, Imax became the exclusive licensee of TI's DLP Cinema technology.

The tide quickly changed, however, when in the latter half of 2000 and into 2001 the semiconductor industry became embroiled in its worst downturn to date due to high customer inventories and weakening demand. Heavily dependent on that segment, TI's profits began to drop off dramatically and were not expected to return until sometime in 2003. Sales also fell throughout the year, down by as much as 40 percent.

"Despite the challenges," claimed a 2001 Business Week article, "few doubt that TI will remain one of the chip industry's leading players in 2003. TI also has a reputation for excellent service, something that impresses long-term customers looking for more participation and input from suppliers." The company's history of overcoming challenges left Engibous confident that TI would emerge from this downturn successfully. With a strong focus on developing technologies, TI appeared to be well positioned to withstand these hardships.

Principal Subsidiaries: Amati Communications Corporation; Auto Circuits, Inc.; Automotive Sensors & Controls Dresden GmbH (Germany); Benchmarq Microelectronics Corporation of South Korea; Burr-Brown AG (Switzerland); Burr-Brown Europe Limited (England); Burr-Brown Pte Ltd. (Singapore); Butterfly Communications Inc.; European Engineering and Technologies S.p.A. (Italy); Fast Forward Technologies Limited (England and Wales); GO DSP Corporation (Canada); ICOT International Limited (UK); Intelligent Instrumentation GmbH (Germany); Intelligent Instrumentation, Inc.; JMA Information Engineering Ltd.;Power Trends, Inc.; Silicon Systems (Singapore) Pte Ltd.; Telogy Networks, Inc.; Texas Instrumentos Eletronicos do Brasil Limitada; Texas Instruments A/S (Denmark); Texas Instruments Asia Limited; Texas Instruments Automotive Sensors and Controls; Texas Instruments Business Expansion GmbH (Germany); Texas Instruments Canada Limited; Texas Instruments (China) Company Limited; Texas Instruments de Mexico, S.A. de C.V.; Texas Instruments Deutschland GmbH (Germany); Texas Instruments Equipamento Electronicl Lda. (Portugal); Texas Instruments France S.A.; Texas Instruments Holland B.V.; Texas Instruments Hong Kong Limited; Texas Instruments (India) Limited; Texas Instruments Italia S.p.A.; Texas Instruments Japan Limited; Texas Instruments Korea Limited; Texas Instruments Ltd.; Texas Instruments Malaysia Sdn. Bhd.; Texas Instruments Inc. (Philippines); Texas Instruments Singapore (Pte) Ltd.; Texas Instruments Taiwan Ltd. Texas Instruments Limited (United Kingdom); Unitrode Corporation.

Principal Competitors: Analog Devices Inc.; Motorola Inc.; STMicorelectronics N.V.

Chronology

• Key Dates:
• 1930: Geophysical Service Inc. (GSI) is founded by Karcher and McDermott.
• 1939: Coronado Corp. is formed as a parent company for GSI.
• 1941: McDermott, Jonsson, and two GSI employees purchase the GSI from Coronado.
• 1942: GSI secures military contracts for the U.S. Navy and Army Signal Corps.
• 1946: Patrick E. Haggerty joins the company; the Laboratory and Manufacturing (L&M) division is created.
• 1951: The L&M is renamed Texas Instruments Inc. (TI).
• 1953: TI goes public by merging with the Intercontinental Rubber Company.
• 1954: Industrial Engineering Associates and TI develop the world's first small portable radio.
• 1958: Kilby creates the first integrated circuit.
• 1961: TI builds the first computer to use silicon integrated circuits for the Air Force.
• 1967: Company engineers invent a hand-held calculator.
• 1969: IBM begins using integrated circuits in all of its computers.
• 1970: The single-chip microprocessor is developed.
• 1976: TI introduces an electronic digital watch that retails for $19.95.
• 1978: Speak & Spell, an educational device using TI's new speech-synthesis technology, is launched.
• 1979: The firm begins selling home computers.
• 1983: TI posts its first-ever loss of $145 million.
• 1988: The company forms a partnership with Hitachi Ltd. to develop 16-megabit DRAM technology.
• 1991: The firm joins with Canon, Hewlett-Packard, and the Singapore government to construct a semiconductor facility in Singapore.
• 1999: Butterfly VLSI Ltd. is acquired.
• 2001: Sales and profits drop dramatically due to a fallout in the semiconductor industry.