Chip off the block

Unlike your garden-variety Silicon Valley CEO, Cypress Semiconductor's T.J. Rodgers is not shy about speaking his mind as an equal-opportunity critic. Over the years, this plain-spoken entrepreneur has publicly skewered sundry political and industry figures he believes to be peddling humbug--and that includes lobbing verbal bombshells in the direction of both major political parties. Along the way, he's taken on the likes of Jesse Jackson, Bill Clinton and Larry Ellison.

For his day job, Rodgers is the founding CEO of Cypress, which manufactures more than 400 types of integrated circuits, with an emphasis on products useful in communications applications. Included in its product line: microprocessor clocks, embedded controllers, static RAM modules and USB chips. The company reported $254.4 million in revenue for the first quarter of 2004, with $26.5 million in profits.

CNET News.com recently caught up with Rodgers to get his take on the controversies over the expensing of stock options, offshore outsourcing and the business climate in California for technology companies.

Q: John Kerry is denouncing "Benedict Arnold" CEOs who send jobs overseas. Is it moral for American companies to increase their overseas outsourcing?
A: It is immoral for any CEO not to run his company in the best possible financial way for his shareholders. I used to hold Kerry's naive view of the "all American" company, meaning all jobs in America. That was a foolish mistake on my part, and it cost my shareholders a lot of money, until I moved our entire assembly and test operation and several hundred jobs offshore in 1992.

You're talking about your Philippines operation?
Yes. To me, it's simply wrong to trash the retirement funds and the college funds of my shareholders so that I can wave the American flag and talk about keeping jobs in America. We do make all of our chips in America, because it's the right thing to do. Americans are good at that. A great majority of our engineers are in the United States also, because they're the best engineers we can find.

Do you do your chip manufacturing domestically because of worries about intellectual property?
No. Our engineers are chosen on merit, period. And we therefore have a mixture of design engineers who are two-thirds American and one-third offshore. A stronger driving force is serving customers. You need to have designers in every market in the world you serve so that they can make the stuff those customers want. There are local differences.

Some AFL-CIO activists are pledging to make the offshoring of technology jobs a campaign issue this fall.
The AFL-CIO has been promoting losing economics causes for years. Other than the government members of the union, the AFL-CIO has lost pretty much all of its membership over the last few decades. The AFL-CIO consistently promotes economic policies that harm its own members.

By that you mean lobbying for short-term benefits at the expense of creating long-term problems?
Yes. Exactly.

You want to eliminate corporate welfare, including for the high-technology industry. In 1999, you told Congress the way to do it was simple: Put all pork barrel projects in a single package, and hold an up-or-down vote. Everyone ignored you.
They're not serious at all about eliminating corporate welfare. It's one of the most sacred parts of our government system.

Corporate welfare is a sacred cow for the Democrats as well as the Republicans.

The Democrats also accuse the Republicans of cozying up to business. I made my first call to eliminate corporate welfare to the then-new Clinton administration. And I was never treated with more hostility than by Congresswoman Anna Eshoo, a Democrat from California, and Democrat Herbert Klein from New Jersey. Both of them were condescending and insulting--beyond just disagreeing with me. Corporate welfare is a sacred cow for the Democrats as well as the Republicans.

Why do so many people living in Silicon Valley seem to support Democrats, even when they are the more regulatory of the two major parties? In Palo Alto, Mountain View and San Jose, there are two registered Democrats for every Republican.
Two big influences are Stanford University and the University of California at Berkeley, both of which are institutions that pour out very liberal graduates into our society. A second point is that it's not always true that we vote liberal. Ronald Reagan was our governor and a very good one.

What's your opinion of Arnold Schwarzenegger?
I think his $15 billion bond offering is really screwed up. But I think that he's trying to do a good job, and I think he's honest.

Are you planning to vote for President Bush in November?
I haven't heard what John Kerry's got to say. I've read a lot of ugly stuff about him. I don't follow campaigns. I don't give money to them, I don't listen to them--they're a waste of time. Ordinarily, it would be a knee-jerk reaction for me to vote for an incumbent Republican, but Bush has done a bad enough job that I'll look at all the candidates and make a decision.

Based on what?
The Republicans are supposed to be a party of free trade and economic freedom. Bush has been one of the worst free-trade presidents we've had in a long time. He is a big spender who makes Bill Clinton look like a penny pincher. I doubt that I'm going to find Kerry to be a viable alternative. This year, if the Libertarians put up a non-nut, I may end up voting for a Libertarian.

How widely do you think your views are shared by other Silicon Valley CEOs?
The practicality of voting shows that you have to be a Democrat or Republican, if you want your vote to matter. In my case, I'm a registered Republican, but I'm always trying to get rid of their "moral majority" crap. There are a lot of Republican CEOs like that, who believe in economic freedom, free markets, free trade and also don't really buy into the moral-majority part of the current Republican party.

You're expanding your Bloomington, Minn., operations. What percentage of your wafers are manufactured there?
Since it makes different-size wafers than the other fabs, a better way to express division is revenue. For the last year, Bloomington has consistently been 65 percent of revenue, and Texas has been 35 percent of revenue.

You still have a small fab in San Jose. Are you thinking of expanding it or building another in California?
We just finished expanding the fab in San Jose in the last 18 months, modernizing it. Our most modern equipment is there. We do all of our research and development there.

You'd be insane to open a manufacturing fab in California. You need a big piece of land, you need freeway access to it for your employees, you need water and power, and you need a local government that wants you there. Then you need a local or several local schools to provide you with a relatively large number of trained people to work in the plant. You obviously want to pay wage rates that make you competitive in the world. What I described is not California.

Why not?
The wage rate is one problem, but it's surmountable, because the cost of a wafer is only 15 percent labor. So if I paid a 20

Larry Ellison has never been one to let a consistent philosophy get in the way of doing what he wants.

percent premium for labor, the wafer would only cost 3 percent more. The killer factor in California for a manufacturer to create, say, a thousand blue-collar jobs is a hostile government that doesn't want you there and demonstrates it in thousands of ways, through bureaucrats and regulations.

Ayn Rand said no society can jail an honest man. So if you want to use the power of society on citizens, you have to make normal behavior illegal. The zoning ordinances and environmental ordinances are a classic example. I guarantee you that nobody truly understands them, and no plant can meet all of them simultaneously. So you end up with a dynamic that there are no laws, and there are no rules, and you're completely at the mercy of the local government, and they don't want you there. And they tell you that. So you go away. That's why there's no silicon left in Silicon Valley.

Cypress has found Minnesota and Texas to be more welcoming?
I remember when I went to Round Rock, Texas, to build our second plant, the mayor walked into the meeting wearing cowboy boots, jeans and a cowboy hat. He flipped a manila folder onto the table. I opened up the folder, and in it was a building permit that was totally blank with a signature at the bottom. Obviously, we went through the code and reviews of Round Rock, but he made the point that: "We want you here. We're going to facilitate you in building a plant."

Would you ever move a substantial amount of Cypress' R&D outside California?
We already have. Any business that depends on any critical aspect of its business being localized in one spot is crazy. You never make all your chips in one plant, you never test all of your chips in one plant, and you never have all of your engineers in one country.

What's the business climate like in California today?
Let me give you an example. When the political pygmies fight with each other in Sacramento and change the workers' compensation rules every few years, it's a big jerk around for industry. Once we get our payroll set up, we have to change it again. The local county and city basically are just bears to deal with in trying to run a business and build things.

You've also run into regulatory problems with your winery, haven't you?
I have a four-barrel winery in a building on my property, and I've been trying for years to get a license to sell the wine I make. I'm building another in the hills that's tied up in red tape.

You're a vigorous opponent of the mandatory expensing of stock options. It looks as if the Financial Accounting Standards Board is going to require it. (Note: This interview took place before the board voted for expensing stock options.)
I'm going to disagree with that. I think that the Semiconductor Industry Association is going to win, and the expensing of stock options for the top five executives is going to be the law of the land for the next few years. Fundamentally, stock options shouldn't be expensed. It's mathematically obvious for anyone who can count, which doesn't include professors at the Stanford and Berkeley business schools.

What will happen if we expense stock options is the exodus of every tech company from Generally Accepted Accounting Principles to pro forma accounting. They've finally made the product so bad that nobody will use it.

You're taking swipes at Stanford, your alma mater, but you still give the school money.
I've taken swipes at Stanford's Graduate School of Business. But the engineering school at Stanford is still top-drawer. (My money) goes to that school; it goes to support graduate students through an endowment.

Why did Cypress branch out into manufacturing solar cells?
My board asked the very same question. First, we've bet as much money on communications as we should bet. In addition to all of our internal R&D, we've spent about $600 million in acquiring communications companies. We weren't achieving our growth rate goals, which are to be a $1 billion-per-quarter company by the end of 2005. It's a way to grow in a more diversified way and place a few venture bets, if you will. Solar cells require high-volume, low-cost manufacturing. We know how to do that. It matches up one of our core competencies in a new field.

Oracle formed a group called ProComp to lobby the U.S. Department of Justice to take down Microsoft. Now, Oracle is having to fight off the Justice Department regarding PeopleSoft. Is there some irony there?
I wouldn't use the word "irony." I'd use the word "hypocrisy." Larry Ellison has never been one to let a consistent philosophy get in the way of doing what he wants. So antitrust is good, if you want to bash Microsoft in the courtroom, because you can't beat it in the marketplace. Antitrust is bad, if it hurts you.

You're outspoken. What kind of reactions do you get from other CEOs as a result of what you say?
There are very few CEOs I dislike enough to publicly criticize. Ellison is probably the best example.

How did you reach your political views?
First, I learned that being an American doesn't mean that you try to maintain all of your jobs in America. On the flip side, for consumers, they don't have to go buy all-American products. That was one lesson: understanding that free trade is important and basic to America. I went through another round when Jesse Jackson came to Silicon Valley and accused us of racism, based on some preposterous racial studies. I had to think about racism. I realized that despite Jackson's self-appointed image as the heir of Martin Luther King Jr., he and Jesse Jackson couldn't be farther apart.

What's your advice to anyone considering looking for a job in this field?
There are jobs out there. The unemployment rate in Silicon Valley is low. Technology and science is where the world is going. A career is something you live with for 40 years or more. You don't make your decision on what's up and what's down.