Interview with Wilf:|
Published Monday, September 7, 1998, in the San Jose Mercury News
Why the chip industry is ready for huge recovery
The semiconductor industry has weathered the current industry down cycle far better than many in the past, says Wilf Corrigan, founder and chief executive of LSI Logic Corp. and former CEO of Fairchild Semiconductor Corp.
And he expects the industry to rebound explosively next year -- thanks to an increase in demand and a shortage of supply caused by tight inventories and plant shutdowns. However, he worries that the shortage of students in science and engineering will hamper the country's high-tech future.
Here's an edited version of answers Corrigan gave in an interview with Mercury News reporters last week:
Q When do you see the chip recovery coming?
A My bias is to be optimistic, and I've been through a lot of these cycles. This is the longest down cycle that we've had, and I've always felt you should look on these down cycles as the hangover before the party. I think the party will come sometime next year, maybe in the second or third quarter.
There's no inventory in the system, and the Internet demand is doubling every 100 days. It's amazing. The things that people want to do on the Internet is probably over time going to force them to get more and more sophisticated equipment (which will increase the demand for semiconductors).
On top of that, plants are being shut down. Siemens is shutting down two plants. Texas Instruments is getting out of the DRAM business, which is going to take capacity off-line. There are a lot of quiet shutdowns in Japan. The Koreans -- if they don't have any money, how are they going to buy more equipment? So they're taking capacity off-line.
Remember Moore's law: Every 18 months you get a new technology. In three years, that's two generations, so a lot of the plants that were around in '95 essentially are functionally obsolete.
Most U.S. companies have gotten through this period reasonably well. If you just went back and looked through your headlines from '85, '80, '75, '70 -- It was Armageddon. Will Intel survive? Will AMD survive? You don't really see those sort of headlines in this time-frame.
If you went to Japan, you'd see a totally different perspective. They have gone through a seven-year recession.
Q How has the Asia crisis affected your business?
A In two ways. There's the direct effect, which we saw toward the end of last year. It affected a lot of people in the industry but didn't affect us very much initially because less than 5 percent of our business is in Asia.
But I think what we're seeing in the third quarter is what I would call the secondary effect of the Asian crisis, which is where our big European and big U.S. customers are being affected even though their U.S. business is still strong.
Q Doesn't that raise the prospect, though, that even though this recession in various parts of the world has been going on for three years, that it's just now going to start affecting American and European companies and it's going to go on for another three years for them?
A To answer the first part: Yes, you are starting to see that effect. Is it going to go on for another three years? Absolutely not.
We're seeing an adjustment to the cycle. You mentioned the Asian effect. But there are other effects going on at the same time, such as the Dell effect. Everybody in the electronics industry is saying: If Dell can get by with seven days' inventory, why can't we? Almost every part of the supply chain has been squeezed. That spring-loads the whole system for the recovery when it comes, and it will be very sharp because there's no cushion in the system today.
Q Didn't the Asian crisis allow you to pick up Symbios?
A I wouldn't say picked it up. Symbios, which is a very good semiconductor operation, would not have been available unless there had been the Asian crisis.
Q You were helped by Adaptec's failure to make that deal because of the government's anti-trust concerns.
A Yes. We were a bidder on this in February. We looked at the Adaptec deal and we thought that probably would be the government's conclusion. So we were kind of mentally prepared when the decision was made to move very quickly. And that's going to be a great acquisition for us because it fits very well with the other things that we do. Storage will be a big marketplace.
Q Will the downturn in the chip equipment industry hurt the development of new equipment your industry needs?
A I don't see any problem in the flow of technology. There's plenty of appropriate equipment. And the prices are getting better on that equipment, which is the wonderful thing about the market.
Q But Applied Materials has stopped investing in equipment that will use 300-millimeter wafers because nobody is buying that equipment.
A None of us needs 300-millimeter equipment yet.
Q How is the Internet changing the way you run LSI?
A It has been much more profound than video. I'm surprised by the percent of time that people spend on the Internet.
I go to production planning meetings and people would ask, what's happening at our plant in Japan? Quickly we'd look up what's happening to production in Japan. If you went to our nerve center in Hong Kong, where we have about 100 people running all of our subcontractors across the Far East, again, everybody's connected by the Internet. It's happened very, very quickly.
Q Is it increasing your efficiency considerably?
A Yes. Any time you improve the communication, you really do improve the efficiency quite significantly. And also, people don't need to be informed; they can inform themselves out of the system, and that's a big change. It's not a matter of pounding out memos; it's a matter of giving them answers, and a lot of stuff happens now at the individual level.
The Internet changes the culture of a company worldwide, because you can be in Osaka or you can be in Munich, and you might as well be in the next office.
And as the bandwidth picks up, you transmit more detailed information quickly. With these digital cameras, for example, we had some issues in the Far East. An engineer took photos with the video camera and -- bang! -- it just came over the Internet, just like that, real-time. Even though I'm in the business, I'm kind of surprised.
Q With the slowdown in the semiconductor business, is the need for employees with H-1B visas as strong as it was perceived at the beginning of the year?
A The problem with the H-1B visas is a supply problem from the other end. We get a lot of political agitation from people saying they're displacing Americans from jobs. I ask, which Americans? You go to Berkeley, Stanford or San Jose State and you look at the graduating classes of the engineering school; it's mostly exactly these foreigners.
Now it's not as much of a problem in Colorado because you can recruit from the Big 10, and generally there are very few foreign students in that area. But if you look specifically in Silicon Valley, the vast majority of the engineering graduates are H-1B visa candidates. In Silicon Valley it's pretty essential if you're going to sustain the growth.
Our industry has been focusing on the supply end, which is the schools, the K-12, and then persuade more people to take engineering.
I have great concerns for the future of this country based on the lack of education in the engineering sciences. We're fortunate, actually, that we've been able to make it up with immigrants, which the Japanese have not
Q Your stock has gotten hammered over the last three or four months. Are you or your board under any kind of pressure to re-price options to keep good people?
A Shareholders do not look favorably at re-pricing stock. We buy into the idea of having managers and employees being in sync with the shareholders. But the idea that every time there's a dip in the stock market, you can reprice the stock -- it's not the right thing to do for shareholders.
Q Would you agree then with what the Financial Accounting Standards Board (FASB) is trying to do to make repricing an actual cost to the company?
A Killing the whole idea of stock options is certainly a negative for Silicon Valley. If they were putting in something like the repricing proposal, I could see that as a more reasonable approach.