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The history of Texas Instruments Inc. (TI) was 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 who developed the first semiconductor integrated circuit in 1958, and TI's semiconductor chips helped fuel the modern electronics revolution. 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's 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, 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&mdashø keep their research and their seismography equipment operations out of view of competitors--they hired J. Erik Jonsson, a mechanical engineer, to head it.
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&mdashø 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.
A major 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's 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. And 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 American plants as well as facilities in Mexico, Argentina, Italy, Holland, and Australia.
One of Texas Instruments's 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, but it was expensive--$100 for small quantities in 1962. But integrated circuits were ideally suited for use in computers, and 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&mdashø 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.
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.
But 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, which reached the market that 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.
But suddenly, 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.
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.
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. 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.
Principal Subsidiaries: JMA Information Engineering Ltd.; Texas Instruments Deutschland GmbH (Germany); Texas Instruments Equipamento Electronicl Lda. (Portugal); Texas Instruments France S.A.; Texas Instruments Holland B.V.; Texas Instruments Italia SpA; Texas Instruments Japan Ltd.; Texas Instruments Ltd.; Texas Instruments Malaysia Sdn. Bhd.; Texas Instruments Inc. (Philippines); Texas Instruments Singapore (Pte) Ltd.; Texas Instruments Taiwan Ltd.
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