The reinvention of Texas Instruments

When Texas Instruments comes to mind, most folks still might think calculators or educational toys. That's because the chip giant has largely been a behind-the-scenes player for the last two decades.

Though it flopped at selling PCs, TI has played a major role in the cell phone revolution: the company's digital signal processors run about half the world's cell phones. It has also carved out a significant place in the digital TV market with its digital light processing (DLP) technology, digitally controlled mirrors that are inside TVs from Samsung and others. TI is now working with Hollywood to retrofit theaters for the digital era. A major announcement is expected Sept. 8.

Richard Templeton, who's worked at the company since graduating from college in 1980, became CEO last year. He recently spoke with CNET News.com to discuss TI's rivalry with Intel, the future of electronics and why the world needs fancy cell phones.

Q: In entertainment, the music industry has made the jump to digital. How are the other segments doing in that regard?
Templeton: In home theater and digital cinema, the technology side of that is pretty much solved. If you look at a DLP-based cinema, you can put up a better looking movie; it's scratch-free, and it looks as good the hundredth time as it did the first time because the film isn't wearing out.

There has been this kind of chicken and the egg stall, though, over who will pay for the theater upgrades. We are seeing that start to get results. The theatre exhibitors are coming to agreements with some of the content people. I think you are going to actually see good growth outside of the U.S., in fact probably before you see it in the U.S.

Where else are companies using DLPs?
Templeton: Most people want to talk about TVs because that's what people can personally relate to. But the projector business is still 60 percent of our DLP business. Historically, those projectors have been the kind of thing that you would use in a conference room. But increasingly, with prices going under $1,000, you are finding those projectors ending up at home on weekends, with DVD players, Xboxes and PlayStations hooked to them.

Understanding where the market is going and participating in it are two different things.

Hewlett-Packard and Radio Shack have a product that I call home theater in a box. You can buy a single box: it's got a DVD player, the DLP projector and an audio system. You carry this home, set it on the coffee table, put a DVD inside of it and you now have on your living room wall home theater without retrofitting. It's almost a "Back to the Future." If you're old enough, you can remember when someone would put a Kodak Carousel on the table.

A couple of our customers have built handheld projectors that literally will fit the palm of your hand, weigh less than two pounds and run off a battery. You can start maybe docking a phone to that if you capture pictures on the phone and show them in a 20- to 30-inch display on the wall.

One issue that comes up with DLP TVs is size. Is there any thought of making smaller DLP TVs?
Templeton: I think you are going to see two things. We're going to make sure we win 40 inches and greater. DLP cleans up when you go above 40 inches because we are basically a semiconductor technology. We can make our chips smaller over time and therefore cheaper. As the display gets bigger, we get more cost-effective, let alone better looking and more reliable.

If you are a plasma guy, the larger the display is, the more expensive it is. It's the same with LCD, so we have an inherent advantage. But it is not lost on us that if there are 8 (million) to 10 million units of 40-inch or greater TVs, you could drop down to a 36-inch diagonal world and step up unit volumes--maybe to 25 million units. So it's a very elastic part of the curve.

But that could still be a tough sell in foreign markets. Some of these TVs are bigger than a lot of apartments in China. Doesn't that make it tough to sell those things overseas?
Templeton: China is the second largest large screen TV market in the world...but don't underestimate the impact of the Beijing Olympics in 2008. I think you're going to find when that country is the focus of the world, they're going to want to make sure that their infrastructure and everything is viewed as being at a world-class level...It's one of the reasons why we believe HDTV is one of the great opportunities. It's a 10-year plus play that we think we're in the very early days of.

Are you satisfied with the government's leadership on the broadband policy in the United States?
Templeton: It's easy to point to the government and say a lot of things. The primary focus for us in Washington is for more R&D investment in basic physical sciences in the universities. I do believe a great competitive broadband infrastructure and a great competitive wireless infrastructure are important for countries. Just like we built road networks and highway systems 40 to 50 years ago, I think this is a call to action.

Intel has been trying to get into cell phones and consumer electronics for the past couple years. You've talked about how the PC era is basically over. How do you see this battle playing out?
Templeton: We're in a communications and entertainment era. That's far from being a secret. Wireless-handset sales are estimated to probably be 750 million units this year, and that's four times the personal computer market. Wireless users globally are 2 billion subscribers by the end of this year, and you can find researchers or forecasters who are saying that could come to 4 billion subs in another four years.

But understanding where the market is going and participating in it are two different things. We were fortunate enough to be involved in DSPs (digital signal processors) 25 years ago and in analog very early on. We have deep customer relationships, we have deep system skills, and we know how to bring all these capabilities together.

If you want to go deeper into India, if you want to go deeper into China, you don't do it with a $150 phone.

Take Intel. In the handset market--despite pretty aggressive investment and pretty strong claims--they've had pretty limited progress to date on that product.

If you just look back at the broader landscape, leaders in one era generally struggle to try to transform themselves to put together back-to-back leadership eras. And this comes from Texas Instruments. If you go back, we had a leadership era coming out of the '50s and into the '60s with the integrated circuit and into early LSI. And we know who won the PC era. I think we are off to a very good start, a very good opening position (in communications). But you know that being off to a good start really does matter here.

Intel has been working to build more of the parts that surround the microprocessor. Do you expect TI to do the same, to the same degree?
Templeton: Past tense. If you looked at a cell phone seven to eight years ago, it probably had 20 to 25 ICs inside. You take a look at a configuration a year ago, and we probably had that down to two or three or four main ICs. We started sampling to Nokia a single-chip cell phone. We've now actually integrated the Digital RF and the radio functions onto the same DSP base band along with the power management.

What is the cell phone industry talking about? We began this year with 3G. In the second quarter, we started hearing the Nokias and the Motorolas talking about the high growth of the low-end phone market, meaning sub-$40, sub-$30. If you want to go deeper into India, if you want to go deeper into China, you don't do it with a $150 phone. You do it with a $30 phone. What we'll be doing with this single-chip solution is driving the ability to design and manufacture ultra-low cost phones. I think you're going to find it has really explosive impact.

Going the other way, we're on our way to having upward of maybe five radios or six radios: tri-band, baseband, GPS. Wireless LAN is getting embedded into these phones. Bluetooth is getting embedded into these phones. We're putting digital TV into these phones. Every one of those are radios. But there is a limit in how many radios you can add because people need low power and consolidation.

If you think about the fact that we could now put the RF with that digital radio into the baseband circuit itself, we can use classic semiconductor manufacturing skills to integrate multiple radios down on to the baseband. You'll find that same capability that we're doing to drive low-end phones continue to work its way up the scale as well.

Do you think consumers are going to get to the point where the phone is good enough?
Templeton: The U.S. is a lousy laboratory to evaluate this because we're happy if we can get a connection. But go to Japan and take a look at what people are doing with cell phones. They'll be watching TV on cell phones not too far into 2006. DoCoMo is looking at embedding payment and scanning using RFID. Everybody thought that camera phones were a novelty four years ago. You can't buy a phone now without a camera, and maybe the next one is a camcorder. Just like we observed the PC industry in the late 1980s and the early 1990s, the creative experimentation that's taking place is higher than ever. That's usually a good leading indicator that there will be more demand in the future, rather than less.

Will there ever be a "TI Inside" campaign for you guys?
Templeton: TI will be sponsoring a car in NASCAR as part of DLP, and that's the area where we will be on brand recognition. There are local electronics retailers saying, 'I want to buy a DLP TV.' You'll see more advertising on football. OEM (original equipment manufacturer) customers want us building DLP image recognition, so that they can sell more DLP-based TVs in that market place. But if you go into the cellular world, the Nokias and the Motorolas and Samsungs are not looking for a TI brand sitting on their phones.