Cypress Semiconductor Smacks California Gov

Cypress Semiconductor's CEO, T.J. Rodgers, continues to impress me months after the company's shareholder meeting. So many CEOs lack knowledge of their own company's product, come from a sales rather than technical background, or are just slimey (e.g. Yahoo's Terry Semel, who released information to China leading to the arrest of a blogger).

T.J. Rodgers is the opposite of all of these CEO stereotypes. He is a plainspoken, knowledgeable man that inspires confidence and whose very presence seems to repel fluff (I had another word in mind, but wanted to keep this family-friendly). Here is a two-part interview with him:

http://news.cnet.com/8301-13578_3-9887435-38.html

http://news.cnet.com/8301-13578_3-9887436-38.html

T.J. Rodgers just had a letter published in the Wall Street Journal that serves as a warning to all Californians. Mr. Rodgers writes, "Except for our sales force, our company was 100% California-based as late as the mid-1990's...[Now] 7,000 of our 8,000 employees reside outside of California. And we are moving jobs out of California as rapidly as we can. Few people know it, but so-called Silicon Valley is not really Silicon Valley anymore--almost all of the wafer fabrication plants have been shut down due to the hostile business climate."

When was the last time you heard of a CEO openly criticizing the state government of his company's HQ? If Sacramento doesn't wake up soon, California will increase two types of jobs, lawyers and low-level service workers, while higher paying jobs move elsewhere.

Here is a paragraph from Mr. Rodgers' famous letter against quotas:

We simply cannot allow arbitrary rules to be forced on us by organizations that lack business expertise. I would rather be labeled as a person who is unkind to religious groups than as a coward who harms his employees and investors by mindlessly following high-sounding, but false, standards of right and wrong...

Cypress stands for personal and economic freedom, for free minds and free markets, a position irrevocably in opposition to the immoral attempt by coercive utopians to mandate even more government control over America's economy.

Read Mr. Rodgers' full letter here:

http://www.enterstageright.com/archive/articles/0996rodgers.htm

A friend of mine emailed me saying I was contradicting myself by advocating more diversity at McAfee and EA but supporting Mr. Rodgers. I told my friend she should realize that being anti-quota is not anti-diversity. Indeed, Mr. Rodgers has beefed up diversity in his company--a quick look at current (2008) executive management shows these names:

Dinesh Ramanathan
Ahmad Chatila
Shahin Sharifzadeh
Hal Zarem
Babak Hedayati

There's at least one Indian and one Iranian now in upper management. Contrast that with EA's executive ranks, and you'll see it's like night and day.

Also, read Mr. Rodgers' 1996 letter more carefully--he specifically states that the picture will change in "10 years," which is now here:

Unfortunately, there are currently [in 1996] few minorities and almost no women who chose to be engineering graduate students 30 years ago. (That picture will be dramatically different in 10 years, due to the greater diversification of graduate students in the '80s.)

In twenty five years, when most upper management in technology companies will be Indian and Chinese (that's where the growth markets are), I bet the same people advocating quotas for non-Caucasians will not be protesting on behalf of Caucasians.

Here is another letter from Mr. Rodgers, against government spying and patriotism:

http://www.commondreams.org/views05/1229-35.htm

Cypress Semiconductor Annual Shareholder Meeting (2008)

Cypress Semiconductor (CY) runs its meeting professionally. Doors are closed after the meeting time, although a security guard allowed me to enter. Two employees check your proxy card, along with your ID, and write out a name tag before letting you in. CY gave away a nice bag this year to all attending shareholders. Also, the food spread was more than your typical coffee and cut fruit--it was a smallish buffet, with some shish kabob and several selections of cheese and whole fruits. In the back of the room, there are several displays about how CY's technology is used in applications as diverse as timers and solar panels.

CY has one billion dollars in cash-that's the first thing I noticed from its presentation. CY is headed by an engineer (T.J. Rodgers), and he gave us a lecture on how CY's technology is more efficient and creative than its competitors. For example, his PSoC, or Programmable System on a Chip, allows companies to move components on a reference design board to get the result they want. In addition, the PCBs do not require the use of a Cypress proprietary IC chip, allowing more flexibility. By being more flexible about the chips necessary for its software and design boards, CY may be able to charge for its boards and software at some point in the future. In contrast, its competitors typically give away their boards and software because they are only functional with the companies' own IC chip, where the company plans on making sales and profits. CY, however, works with several different companies, including NOK and MOT, which use Cypress chips in some of their phones. With respect to "sideloading," which includes the task of uploading movies or content onto a phone using a USB device, I thought it was interesting that the RIMM and MOT phones were currently among the fastest, while the Sony ERIC phone was the slowest. Apple's iPhone speed was in between.

CY's PSoC design may also be more environmentally friendly, because fewer boards and components are necessary to accomplish several different tasks. The presentation included showing us how one such board could create several different kinds of light in different intensities, all from one board. (We were treated to a fun, small-scale Disney Fantasia show, where the CEO, who was holding a rectangular 8 watts LED light, would tell an associate across the room, "Blue! Now turn it up [in intensity]. Now green. Now white." You get the picture.)

This is where it gets interesting. CY's technology encourages the use of LED lights, which last longer and use less power, and are therefore more environmentally friendly. There are three types of lights: LED, CFL (compact fluorescent), and INCAND (incandescent), in order of most environmentally friendly to least. The LED light required the most upfront investment--around 12 to 20 dollars--but over its life of multiple years, sometimes even as long as 17 years, the buyer would spend less because electricity bills would be lower. Therefore, while the INCAND bulb only cost around 4 dollars initially, it actually cost 300 dollars more than the LED light over the same period of time because of the extra "juice" it requires. The CFL was in between, but the LED light was clearly superior when lifetime costs, not just initial costs, were factored in. The lesson I took was to try to find LED lights whenever possible, despite the higher upfront cost.

However, despite this new angle and method of designing semiconductors, the charts showed that semiconductor sales were decreasing and have been declining for quite some time. Most of CY's growth comes from its earlier acquisition of Sunpower, a solar panel technology company. [Update: CY has spun off Sunpower.] CY focused on the fact that its solar panels are far more efficient than its competitors, especially those using "thin film" or "conventional" solar panels. CY also mentioned that it was going to present the tax consequences of spinning off its Sunpower company to shareholders to the Board that same day.

I was very impressed with the presentation and this company. Few companies present themselves so professionally and are on the cutting edge of innovation.