Cirrus Logic, Incorporated Business Information, Profile, and History

History of Cirrus Logic, Incorporated

Cirrus Logic, Incorporated is a leading producer of semiconductors. While the company designs and writes software for microchips for use in a wide variety of specialized applications, it is an industry leader in the areas of mass storage management, VGA graphics, audiovisual conversion, and communications.

Cirrus Logic traces its origins to a small company called Patil Systems, which was founded in Utah in 1981 by Suhas Patil, a former Massachusetts Institute of Technology (MIT) professor then teaching at the University of Utah. While at MIT, Patil had developed a microchip-level software system for controlling computer hard disk drives, which he called Strategic/Logic Array (S/LA). The S/LA system represented a substantial improvement in the management of hard drive functions, since it behaved more consistently and was easier to design than existing systems. Patil gathered together several associates and formed Patil Systems to market his new product.

Over the next three years, however, the company's efforts produced little commercial success. "I made the rounds and couldn't give it away," Patil would later recall in Upside. For help with the marketing and management of his tiny, eleven-employee company, Patil contacted Michael Hackworth, a former marketing executive for Fairchild Industries and Motorola who was senior vice-president of Signetics, the Sunnyvale, California-based semiconductor subsidiary of North American Philips, in 1984.

The prospect of working with Patil sparked Hackworth's interest. Although a prominent executive at Signetics, he was unhappy with the way the company operated, and especially with the inefficiency with which it introduced new products. When Patil first contacted him, Hackworth thought that S/LA software might be of use to Signetics. But then, as he later remarked in Upside, "When I got in and met the people and understood what they had, it hit me like a ton of bricks that his could be the basis for a new kind of chip company." Hackworth perceived that Patil's S/LA system could be used to develop a wide range of highly specialized semiconductors in a relatively short time. All the development process would require was a systems engineer who could program and arrange the chips to facilitate whatever function the product was supposed to carry out.

Instead of absorbing Patil Systems into Signetics, Hackworth left Signetics to join Patil Systems. He became president and CEO, while Patil assumed the posts of chairman and executive vice-president of products and technology. The company reincorporated in California in 1984 under the name Cirrus Logic, Incorporated, and moved its headquarters to Fremont, in the northern half of the state. The company's new name came when Hackworth decided that Patil Systems needed a new name, but one that did not dip into the alphabet soup of Greek prefixes and suffixes in which the Silicon Valley seemed to swim. One of his daughters came up the idea of renaming the company after cirrus clouds, the highest clouds in the sky, as a way of expressing the elevated complexity of its products.

Under Hackworth, Cirrus Logic pursued a strategy that emphasized developing peripheral devices in which the company's semiconductors were used. This emphasis stemmed in part from Hackworth's experience at Signetics, which had developed a 2650 microprocessor only to see it fail because its application in peripheral devices had not been taken into account during the design process. Under this plan, Cirrus Logic would use the versatility of the S/LA system in an opportunistic manner, jumping into new peripheral markets as they emerged. The company bought raw microchips from outside foundries to avoid the burden of running its own fabrication operations.

When major opportunities presented themselves, Cirrus Logic did not ignore them. Originally, Hackworth's master plan had envisioned the company developing products for microcomputers, but not the microcomputers themselves. But in the mid-1980s, the boom in personal computers began. Cirrus Logic responded with a neat product development sidestep, simply applying the concepts it had intended for peripherals to the emerging PC market instead.

The company's first major effort in marketing its hard drive controller resulted in its first major success. Though it faced daunting competition from more established companies such as Adaptec and Western Digital, Cirrus Logic had an advantage: it had developed the first controller chip that could be mounted inside the drive mechanism, rather than on a card outside it. This innovation would eventually lead to more compact hard drives. At first, Cirrus Logic's product was too advanced to sell easily; an official from prominent hard drive manufacturer Seagate Technology told Hackworth that the Cirrus Logic controller was five years ahead of what his company wanted. But Cirrus Logic modified the chip to fit Seagate's needs and received a contract from them. Conner Peripherals, which made hard drives for Compaq Computer PCs, soon followed with orders of their own.

Cirrus Logic's successful entry into the PC hard drive market paved the way for future successes. While its hard drive controller chip drove sales, accounting for as much as 80 percent of total revenues, the company developed new graphics- and communications-related products. In 1987, IBM unveiled Video Graphics Array (VGA), its new technology standard for graphics display. This started a scramble among chipmakers to develop products to conform to the new standard, a competition that Cirrus Logic won, producing the first fully compatible VGA controller microchip. In 1989, the company developed a VGA controller for flat-panel liquid crystal diode (LCD) displays, barely anticipating the boom in notebook computers, which used such displays.

Also in 1989, Cirrus Logic went public. It used the cash raised to finance a series of acquisitions that broadened its technological expertise. In 1990, it acquired Data Systems Technology, which specialized in data compression and error-correction algorithms for modems. The next year it purchased a controlling interest in Pixel Semiconductor, a video-imaging technology firm with expertise in the multimedia field, from Visual Information Technologies. It later absorbed Pixel Semiconductor's operations into its own. In 1992, it acquired R. Scott Associates, a modem software company, and Acumos, which specialized in high-integration desktop graphics. In 1993, it acquired Pacific Communication Sciences, a leading developer of Cellular Digital Packet Data communications technology. Also in 1993, Cirrus Logic announced that it would produce custom microchips for companies licensed by Apple Computer to manufacture Apple's Newton personal digital assistant.

In its first fifteen years, Cirrus Logic grew from a tiny company struggling to raise a few million dollars in capital to an important presence in the microchip industry with well over $500 million in annual sales. At the same time that its sales skyrocketed, it broadened its technological expertise with similar rapidity. But its rapid growth brought problems as well as benefits, and in the wake of its rapid string of acquisitions in the early 1990s problems in incorporating these new subsidiaries became apparent. Difficulties in communication sometimes produced delays in developing and delivering new products. Consequently, the company embarked on a reorganization in 1993 designed to decentralize and streamline operations at the same time.

Cirrus Logic's growing importance as a supplier of semiconductors also increased concern over continued access to sufficient quantities of raw chips. Cirrus Logic had not only taken pride in its "fablessness," its lack of chip fabrication operations and consequent need to rely on outside foundries, but considered it a necessity. "We will never eliminate the fabless approach," Michael Hackworth declared in 1993. "The foundry thing has provided us with enormous flexibility that we would never ever have if we had to drag our own clean room [for fabricating raw chips] around with us. The chances of us doing a [brand-new] clean room on our own are zero or none." But the production glut in raw chips that had made life easy for Cirrus Logic and similar fabless chipmakers began to dry up in the 1990s at the same time that demand for the company's products began to pick up from levels that were already quite high. In 1993, Cirrus Logic signed agreements with its suppliers to buy a set number of chips over three years in return for guarantees of foundry capacity, but even this did not prove entirely satisfactory.

Fortunately, Hackworth had not ruled out a joint fabrication venture with another semiconductor company with which it was not in direct competition. And so in 1994, Cirrus Logic took a first tentative step toward fabrication by signing a joint venture with IBM. Under the terms of the agreement, the two companies would refurbish an under-used IBM plant in East Fishkill, New York, that once manufactured chips for mainframe computers. Even with IBM's help, Cirrus Logic estimated that the project would cost it tens of millions of dollars.

That Cirrus Logic has experienced growing pains should not cause surprise or alarm. Its growth has been so rapid that it should have been expected. Keeping agile in an industry in which change is quick and consistent is the challenge for the company as it grows.

Principal Subsidiaries: Cirrus Logic K. K. (Japan); Cirrus Logic, Gmbh (Germany); Data Systems Technology; Data Pump International; Acumos Incorporated; Crystal Semiconductor; Pixel Semiconductor; R. Scott Associates.