Dave Bell: The stagnant analog IC companies will be eliminated

Time: March 20th, 2012 Venue: Intersil Shanghai Office, Shanghai International Trade Center People: Dave Bell, CEO, President and Director, Intersil Corporation

Deputy Chief Editor of China Electronics News, Hu Chunmin



Mr. Dave Bell is the CEO, President and Director of Intersil Corporation. Previously, Mr. Bell was President and Chief Operating Officer of Intersil.

Mr. Bell joined Intersil in April 2007. He previously served 12 years at Linear Technology Corporation ("LTC") and served as president of LTC from June 2003 to January 2007.

Prior to becoming president of LTC, from January 2002 to June 2003, Mr. Bell served as vice president of LTC and general manager of power products. From February 1999 to January 2002, Mr. Bell served as LTC’s general manager of power products.

From June 1994 to January 1999, Mr. Bell served as general manager of strategic product development at LTC.

Mr. Bell holds a bachelor's degree in electrical engineering from the Massachusetts Institute of Technology.

Technology investment is difficult to see in one or two years. It is appreciated that China has a five-year plan rather than a two-year plan and a three-year plan. In fact, if you want to make a major change and make a major strategic investment, it will take five years before the results really take.

Hu Chunmin: As of April this year, you have been in charge of Intersil for exactly five years. How do you evaluate your record in the past five years?

Dave Bell: This question is difficult to answer. If you want to answer briefly, it is still not conclusive. In 2007, I started as Intersil's CEO. At that time, I reorganized the company into power management products, analog and mixed-signal products. Last May, we opened up the third largest business unit - consumer products. I personally feel very excited about the company's changes and transformations in the past two years. Our balance sheet is very strong. Intersil has become a leader in the high-performance analog and mixed-signal IC market, with 1,700 employees, 35 offices and 17 design centers worldwide.

If you ask U.S. investors about my evaluation of the past five years, they may be disappointed because they are shortsighted. In the U.S. stock market, investors hope to see returns in a year or two, but an investment in great technology is difficult to see in a year or two. Many investors in the United States have made trouble to me. They said that they have invested in new product technologies. Three or four years have passed. When will I see returns? I told them to be patient. I believe that investors will be very happy this year and next year. On the one hand, the macro economy will pick up. On the other hand, we will invest heavily in research and development. We can see results this year. I appreciate China's five-year plan, not the two-year plan and the three-year plan. In fact, if you want to make a major change and make a major strategic investment, it will take five years before the results really take.

Hu Chunmin: In 2009, Intersil proposed that "the sales revenue in the next two or three years should reach one billion U.S. dollars." Is this goal fulfilled now? What measures have you taken at the strategic level in the past two years to promote this goal?

Dave Bell: Two years ago when I was interviewed by a reporter from China Electronics News, I mentioned that the company has a goal of achieving $1 billion in sales within two years. Unfortunately, this goal has not yet been realized. Last year's turnover reached 760 million U.S. dollars. There are two main reasons behind this: First, the global economy experienced two serious downturns in two years, making the growth of enterprises very difficult. We experienced a decline in sales for three consecutive quarters, but we have begun to recover in the most recent quarter. The economic downturn has affected not only an Intersil company, but also the entire semiconductor industry. Second, Intersil is undergoing a strategic transformation. To become a great company based on R&D, we used to produce comparative second-line products. However, the current situation is to bring more innovative products to market. The process of transformation is very difficult and challenging. Sometimes it takes time to introduce innovative products longer than we expected. I believe that with the recovery of the economy, our huge investment in the previous period will bring about returns. It is estimated that we will realize the goal of 1 billion US dollars in a year or so.

Hu Chunmin: At present, the ratio of R&D investment to sales in Chinese companies is 0.69%. Generally, large companies are about 3% to 4%. I would like to ask what is the proportion of Intersil's investment in research and development in sales? In terms of R&D investment, what principles does Intersil follow?

Dave Bell: I think your question is very important. This question highlights what kind of company Intersil is. In the entire semiconductor industry, the average ratio of R&D to sales is 17%. Intersil's investment in research and development has accounted for more than 25% of sales in the past few quarters. Our investment in R&D is very large, because R&D will eventually translate into turnover.

Hu Chunmin: You just mentioned the strategic transformation. What are the specific aspects of Intersil's transformation? Apart from actively pursuing innovative products, what are the changes?

Dave Bell: The transformation we are referring to consists of the following: First, the changes in the markets we serve. The current focus of our company is that the company's market strategy must be in line with the big trends, such as the continuous increase in Internet traffic we see and energy saving. Two major trends, our market strategy must cooperate, develop the corresponding products.

The second is the change in product development. The company’s employees often hear me say, “We must know how difficult it is.” We are trying to develop products that are very important to customers and difficult for competitors to imitate. We have to set goals very high. Let yourself face great challenges.

The third is the change of corporate culture. It is very important to realize cultural changes in order to realize the changes in product development. Intersil is a fast-paced and responsive company. I hope all employees are dynamic and aggressive.

The fourth is the change of employees. In order to achieve such a cultural transformation, we need to employ very good talents. These talented people should like to work very fast, ambitious and forward-looking companies such as Intersil.

The key to strategic M&A is not to buy cheaply The principle of Intersil M&A is strategy first, price second, that is, the primary consideration is not whether to buy cheaply in finance, but to see whether the M&A target is in line with the company's established strategic direction.

Hu Chunmin: The development of a company usually has two modes. One is to grow by its own strength, and the other is to increase strength through mergers and acquisitions of other companies. These two development models should have advantages and disadvantages. Looking at Intersil's history of development, "mergers and acquisitions" is a key word that has to be mentioned. Some people have even described Intersil as a "normalized merger and acquisition" for many years. Intersil as a M&A professional household, what experiences are shared with industry peers?

Dave Bell: Doing business or doing good work is a very important balance. The essence of Chinese philosophy is balance. Our company has been pursuing a balance and seeking a balance between connotative growth and strategic acquisition. Through a series of mergers and acquisitions, we have summed up some experiences: First, the most important experience is to see whether the target of M&A is in line with the strategic direction of the company. After Intersil acquired it, whether it meets our established strategic direction. Intersil often meets with investment banks. The people of investment banks often recommend to us the targets of the acquisition. They will say from a financial point of view that this is a good deal, because the price you buy for this company is very cheap, but our primary concern is not Whether financially bought cheaply. Of course, if the price is cheap, surely it is good, but the order is still the first strategy and the price is second.

Second, see if the acquisition target is close to our core business and whether it is technically relevant. We do not want to acquire a company that is far away from the core business of our company and whose technology is not strong enough. Only the target of mergers and acquisitions is within our core business scope. It can quickly form synergies and complementary advantages with us. Finally, the integration after mergers and acquisitions is also very critical. We will consider certain aspects of rapid integration, some aspects are intentionally slowed down, and integration has to be moderated. Making this reasonable decision is critical.

Hu Chunmin: The industry’s evaluation of Intersil’s strategic acquisition is “really very likely to buy”. In March 2010, Techwell acquired the fabless factory with USD 370 million. What is the status of Techwell?

Dave Bell: The acquisition of Techwell can be said to be very successful, but when we bought it two years ago, we heard a lot of criticism - it was too expensive to buy, and of course this kind of criticism can't be heard. I think this is a strategic acquisition. The integration process is very smooth. To integrate Techoffice with such a big company, there is a lot of work to be done, but the result of this integration is satisfactory. Techwell is the leading manufacturer of video decoders in the field of security surveillance, and its market position has remained at the forefront after the acquisition. In 2015, the United States will require all vehicles to install cameras on the rearview mirror. This happens to be an important business market for Techwell, which has a market share of 99% for video drives.

Hu Chunmin: In addition to the acquisition of Zilker Labs, D2Audio, Techwell and other companies, Intersil also acquired Chinese enterprises in December 2009. This is Intersil’s first acquisition outside the United States. How do you evaluate the integration? The development of the situation?

Dave Bell: There are teams in Shanghai and Wuhan, and Intersil will continue to expand the two teams. In fact, the company has also become the design center of Intersil. This design center focuses on consumer products. The products designed in the future will not only meet the needs of the Chinese market, but also meet the needs of the global market.

Hu Chunmin: There was a rumor in April and May last year: After TI acquired National Semiconductor, some analysts said: “Intersil or the next acquisition target of the chip industry”, Intersil's revenue growth rate has been high in the past 5 years At National Semiconductor, it left room for buyers to increase profitability. How do you see this rumor?

Dave Bell: Regarding the rumors of being acquired, although this possibility exists, I think it is unlikely to happen. Because in the semiconductor industry, when your stock valuations decline, there must be such a rumors to describe you as an attractive acquisition target. The reason that I think is not likely to happen is that companies in the entire industry are focusing on internal strategic adjustments. There should be no such intention for companies – they are doing acquisitions now.

The most difficult thing for small and micro enterprises to focus their resources on to win the business is to give up. In theory, companies can do a lot of things, but I think companies should do something and do something wrong.

Hu Chunmin: From the perspective of the size of the company, Intersil is considered a small and medium-sized enterprise in the world. Compared with the semiconductor giant, Intersil still has a gap in scale. So, what is the strategic direction of Intersil to pursue large-scale or want to be a SME with core competitiveness?

Dave Bell: This question is very good. I know there are many strong competitors, such as TI, who have almost all of us in the fields we are engaged in. Regarding the strategic direction, we will focus on concentrating resources on stronger technical areas and defeating competitors in this field through our technology. In fact, small companies also have many advantages, such as rapid strategic decision-making, which can form a team to attack a specific market in a short period of time, while the actions of large companies are relatively slow.

In terms of strategic planning, Intersil identified ten growth drivers for building core competencies: digital power management, digital power modules, Pico projectors, automotive electronics, active fiber optic cables, dense power conversion, optical sensors, audio , PC power management and security monitoring. Intersil wants to focus all its resources on these ten growth drivers, and these ten growth drivers are equally important in China.

Hu Chunmin: China has proposed to develop small and micro enterprises this year. However, the development of small and micro enterprises faces many difficulties. Intersil, as a small and medium-sized enterprise, has developed relatively successfully. What experiences do you share with Chinese small and micro enterprises in the development process?

Dave Bell: For small and micro enterprises, the most important thing is to focus on focusing on the most critical issues and focusing resources on areas that are sure to win. For enterprises, the most difficult thing to do is to give up. In theory, companies can do a lot of things, but I think that companies should do something and do something wrong.

Hu Chunmin: Intersil is now focusing on four major areas of computing, communications, consumer, and industrial. We have noticed that the share of computing continues to decline, and the share in the other three areas has increased slightly. Intersil's industry prospects in these four areas are determined.

Dave Bell: You are very right. The share of computing continues to decline. This is what the company intends to do. We have 34% of our calculations a few years ago. We actively lower our share by not wanting to rely too much on personal computers. Market, but we will still maintain some business in the computer market because we have very good differentiated technology in this area. In the other three areas of communications, consumption, and industry, I think there are very good growth opportunities in China, but their return cycle is different. The consumer industry is growing very fast. If the investment can be two quarters, it can have income; Contrary to the consumer industry, growth is slow, investment takes longer to see returns, and the communication industry's return cycle is somewhere in between.

Hu Chunmin: The recent development of the semiconductor industry in Japan has not been smooth. Elpida has gone bankrupt. Renesas, Fujitsu, Panasonic and other companies are also restructuring. What do you think of this? Is it a problem with the global semiconductor industry? Is it a good thing for US semiconductor companies or other competitors?

Dave Bell: The situation in the semiconductor industry in Japan is a bit special. The earthquake and tsunami occurred in Japan a year and a half ago. This is a catastrophic event. In addition, the structure of the Japanese semiconductor industry is relatively single, and Japan's industrial structure makes it very slow to respond to market changes. The evolution of the semiconductor market is very rapid. The ability to respond quickly and vitality is important.

The "12th Five-Year Plan" is the growth driver for China's IC market As the cost of OEM manufacturing continues to increase, China's semiconductor market will not maintain a growth rate of more than 20% before 2010, but its growth will still be much higher than the global average.

Hu Chunmin: Intersil has 3 design centers in Chengdu, Wuhan and Shanghai in China, and an application center in Hangzhou. Intersil sells 50% of its products to the Chinese market. It can be said that China is very important for the development of Intersil. How does Intersil judge the trend of China's semiconductor market and your countermeasures?

Dave Bell: After the international financial crisis, China's semiconductor market recovered rapidly in 2010, achieving a 29% growth. Looking further back, China's semiconductor output growth may slow down, and will not continue to maintain more than 20% growth, mainly due to rising costs of OEM manufacturing.

However, we believe that the growth rate of China's semiconductor market will still be much higher than the global average, and the "Twelfth Five Year Plan" issued by the Chinese government will also become the driving force for the growth of China's semiconductor market.

Hu Chunmin: Intersil's four major areas of computing, telecommunications, consumer, and industrial development are unbalanced in China. Some develop rapidly and others are slower. Will Intersil's strategy in the Chinese market be more focused on a certain area? Will priority be given to the development of consumption and industry?

Dave Bell: We are all investing in these four major areas in China, but the balance is very important. Our balance includes the following three aspects: First, the balance between intensional growth and strategic acquisition; second, internal manufacturing and foundries. The balance between processing, the third is the balance between the four major areas of computing, communications, consumption, and industry. At present, we have already invested in the industrial sector, but this payback period is relatively long, and our return on investment in the consumer and communications sectors may be relatively fast.

Hu Chunmin: What opportunities and challenges do you think Intersil faces in the Chinese market? What are the plans for expanding Chinese customers?

Dave Bell: I think China is full of exciting opportunities because there are too many opportunities. We are faced with a big challenge is where to focus. China is crucial to the growth of Intersil. The proportion of our products designed in China reached 8% a year ago. At present, this proportion is still increasing, which is more profound than China's.

In expanding our customers, we have established partnerships with many large electronics companies such as Huawei, ZTE, and Xiaomi in the electronics industry and automotive industry. China's major customers are critical to our growth. However, there are many small and medium-sized enterprises in China. They do not know about Intersil. We hope to expand the number of customers in China and increase Intersil’s brand awareness in China. This is my task and is also the mission of our China General Manager Chen Yu. Over the past few years we have expanded our product line. We have many excellent industrial applications such as amplifiers, data converters, etc. These products are useful to tens of thousands of SMEs in China, so we should let them know that Intersil has such product. At present, we have begun to deploy field engineers in second- and third-tier cities in China so that our customers can get the skills and services of our engineers in the first place. In the future, we will increase investment in this area.

Hu Chunmin: Some people think that the degree of concentration of the analog IC industry is not too high. The future trend is large and complete. What do you think of this? What do you think is the focus of innovation in the future of analog ICs?

Dave Bell: In my opinion, the analog IC industry will still maintain a relatively decentralized situation, which means that the industry must be a small company, a medium-sized company, and a large company, and small companies can also come in for technological development. Small companies respond to the market very quickly and may also develop into large companies. The only unacceptable aspect of the analog IC industry is that companies will stagnate and companies will be eliminated as they stagnate. Therefore, they must run fast.