KLA-Tencor Annual Shareholder Meeting (2009)

Walking into KLA-Tencor's (KLAC) annual shareholder meeting, I felt like I was entering a Mad Men set: everyone seemed crisp, professional, very white and very male. Out of the eleven upper management and/or board members seated in the first two rows, 100% were male, and only two were non-white. Having non-diverse upper management isn't as bad as having a city council member make misrepresentations to one of his own constituents (Hiya, Pete Constant!), but it's still undesirable. After all, a company that is global and non-diverse violates the Law of Diversity and hinders its own growth and reputation.

In a nutshell, KLAC provides highly specialized instruments that detect natural defects on man-made wafers and reticles. As semiconductor chips and wafers become smaller, they become more complex, and the manufacturing process requires increasingly specialized equipment to find defects. Put another way, KLAC engages in metrology--the science of measurement--for semiconductor companies like Intel (INTC) and fab owners.

KLA-Tencor offered shareholders water and coffee only. CEO Richard Wallace handled most of the meeting and did an excellent job bestowing confidence. He said KLAC was not interested in commoditizing its products, but this goal required high R&D expenditures. In short, KLAC must innovate at a rapid pace to continue its superior position in the marketplace and to beat competitors such as Applied Materials (AMAT) and Hitachi (HIT).

The CEO's Darwinistic attitude is good for KLAC because its "customers need to get [their products] to market quickly" in order to capitalize on high prices. Technology improves at such a rapid pace, consumer companies need to be able to rely on companies like KLAC to find chip defects quickly. When KLAC succeeds, companies can provide consumers with non-defective products and also effectively capitalize on the initial demand for highly-touted products.

CEO Wallace convincingly stated that KLAC doesn't believe its success is an entitlement. His intense yet dignified approach seems like an excellent fit for KLAC. Highlighting the sudden and severe depth of the recent recession, Wallace mentioned that he once felt he had "no visibility about when [demand] would come back." Now, however, he senses the worst is over.

I asked my usual question: what competitive advantage does KLAC have against its competitors? CEO Wallace said KLAC's products are more complex and therefore have "more capabilities" than competing products. At the same time, the high level of complexity makes KLAC's products "more expensive," so smaller companies might be able to target a specific area in KLAC's business and provide alternate low-cost solutions. I found the CEO's honesty refreshing. It's rare to see a CEO point out his company's advantages and disadvantages.

When I pointed out the company's lack of ethnic and gender diversity on its Board of Directors, the Chairman of the Board mentioned that KLAC had one South Asian male and one Asian male in upper management. (There are no women on KLAC's Board of Directors.) The CEO also pointed out that the Director of Communications was female. In an email sent to me after the meeting, the company stated that "KLA-Tencor has a geographically and ethnically diverse workforce--nearly 50% of our company is non-Caucasian...and 40% of our management team is non-Caucasian."

Other highlights: though KLAC has gone through some cost-cutting, "nothing significant was cut"; 80% of KLAC's sales are outside the United States; when the economy rebounds, KLAC believes it will be leaner and more profitable.

Disclosure: I own an insignificant number of shares of KLAC.

Andre Agassi: Open

Andre Agassi came to Palo Alto, California last week. The Commonwealth Club hosted an interview and book signing. Andre Agassi oozes charm, intelligence, and charisma. Although not formally educated, Agassi's intelligence is palpable, but so is his need for acceptance and his sensitivity to criticism. Joel Drucker, a reporter who recently reviewed Agassi's book, Open, was on the receiving end of a few barbs from Agassi. Few people can single out a reporter during an interview and still come out looking good, but Agassi's charisma allows him to say things almost no one else can say.

I look forward to reading Agassi's book. In the meantime, here are some snippets I remember from the interview:

On Michael Chang: Agassi found Chang's habit of crediting God for his wins "odd." He said if Chang had blamed God when he lost, he would have had more respect for him.

On His Father: if he had to do it all over again, he wouldn't have changed anything, except he would have pushed Agassi into baseball or golf. Apparently, Agassi's father believes that baseball and golf athletes play longer and make more money.

On Tennis: Agassi mentioned the loneliness of the sport and said no other sport is as lonely. As a result, Agassi joked that tennis players like to talk to themselves a lot, and also answer their own questions.

On Coach Brad Gilbert: he talks a lot, but in the middle of one particularly frustrating match, he was very quiet. When Agassi told him, "Now's the time you stay silent?" Gilbert, obviously incensed at Agassi's failure to perform up to his potential, responded, "What do you want me to say? Let me make this as simple as I can. See the ball; run to the ball; hit the ball. If you can't do that, then just do what the other guy is doing!" Agassi went on to win the match.

On His Dad's Iranian Connection: Agassi said his dad--ethnically Armenian, but born and raised in Iran--never taught him Farsi, so he doesn't feel a connection with Iran. He said his dad pursued the American dream by coming to America. At the same time, Agassi, ever the diplomat, said he was curious about Iranian culture.

I was disappointed, because growing up, Agassi was the closest thing to a cool Iranian celebrity. All the Iranian kids looked up to Agassi, just like all the Chinese kids looked up to Michael Chang. As my friend said, when Michael Chang, a Chinese tennis player, won the French Open, "all the Chinese kids (myself included) decided to pick up a racket."

On Roger Federer: Agassi called Federer a freak of nature and said he was the greatest of all time.

On His Son: after his son threw a tennis ball at Agassi's dad, his dad told Agassi if his son ever did that again, he'd kick his butt so hard, his son wouldn't sh*t for a week. Agassi's son responded with more curiosity than fear, asking, "Is that possible?"

On Charter Schools: Agassi has opened a charter school and said he favors the charter school system because charter schools are able to demand additional requirements (such as mandating parental involvement) and to terminate bad teachers. When someone asked if Agassi would send his own kids to the charter school, Agassi responded that the kids were chosen through a lottery system over which he had no control, but even if his kids were accepted, his school was for children who had no other options. Agassi said he didn't want one of his kids taking a spot from someone else with fewer options.

Father-in-Law: [from the book] the first time Andre's and Steffi's fathers met each other, they almost got into a fistfight.

Bonus: the NYT's book review is here (November 20, 2009, Sam Tanenhaus).

Omar Khayyam: 1,000th Post

From Omar Khayyam's Ruba'iyat:

If I'm drunk on forbidden wine, so I am! / And if I'm an unbeliever, a pagan, or idolater, so I am! / Every sect has its own suspicions of me, / I myself am just what I am.

My rule of life is to drink and be merry, / To be free from belief and unbelief is my religion: / I asked the Bride of Destiny her bride-price, / "Your joyous heart," she said.

Due to a high metabolism, I don't feel any positive effects from drinking, so Khayyam's "forbidden wine" gives me no succor. Even so, I appreciate good poetry, and I am using his words to commemorate my 1,000th post on this blog. (At least I think this is the 1,000th post.)

I'll buy myself an eggnog latte later as a reward. For my regular readers, I hope you continue to enjoy my blog. As always, thanks for reading.

Want to Learn More about Iran and Nuclear Weapons?

If you want to learn more about Iran and nuclear weapons, you have to listen to Nobel Peace Prize winner Mohamed ElBaradei. Charlie Rose interviewed him in 2007. See here.

Dodgeball and Evolution

Barry Petchesky cracks me up.

A kid got nailed in the face during a dodgeball game at his school, and now he might sue the city. Maybe he needs to sue evolution for not giving him the reflexes to survive in middle school gym class.

I think I understand what happened here. Kid gets hit in the face, incurs about 15 grand in dental work, and someone has to pay for it. Parents probably don't have 15 grand to pay a dentist or dental insurance, so they need to get the money from somewhere...and they sue. The city, which runs the school, offers to give the lawyer 5 grand and the kid 15 grand to avoid lawyers' fees and a sympathetic jury.

Who's ultimately on the hook? NYC taxpayers. And you know what? I'm okay with that.

Book Recommendation: The Assist

I recently finished a great book, Neil Swidey's The Assist. The author shadows a Boston high school basketball team and their driven coach. Along the way, the author examines busing, racial issues, the judicial system, and the code of the streets. Imagine Hoop Dreams crossed with Boyz in the Hood.

On white flight in Boston's neighborhoods: "The sad fact, she said, is most whites aren't comfortable being in the minority, and unless they can be guaranteed a school where they are in the majority, most of them won't return to the public schools." (page 107, paperback, Public Affairs, 2008)

On the origins of basketball: "In December 1891, James Naismith, a thirty-year-old phys-ed teacher at the School for Christian Workers, nailed two half-bushel peach baskets to the edge of an elevated indoor track, divided his eighteen stir-crazy students into two teams of nine, and taught them to bounce a fat ball and toss it at their side's basket. There were no holes at the bottom of the baskets, so Naismith kept a ladder nearby for use after each score." (page 87)

From an experienced school administrator: "Kids are no damn good!" [Headmaster Michael] Fung would tell all the wide-eyed recent college grads he hired to rejuvenate his faculty. "They leave the school a mess. They don't listen. They swear." Then he would pause for effect. "That's why we have to work hard to make them good." (page 168)

Fung advised the teacher[that] students must be taught to respect boundaries. No, the teacher replied, she wanted teach them that they are respected and trusted. Not long after that, her students stole her lunch. Then her credit card. Then her $300 jacket, which they set on fire. She no longer worked at Charlestown High. (page 171)

On Criminal Law: "Do we have a Bruton problem?" he asked, invoking a Supreme Court ruling that had become shorthand for trials of co-defendants that get stuck in a goulash of blame. (page 292)

Where Did the Stimulus Money Go?

Wondering how the stimulus money is being spent? You can look up various beneficiaries online. Here is the breakdown for Santa Clara County. Most of the money went to school districts. Teachers' unions have major pull nationwide, and California is no exception.

According to a recent Pew Center report, the ten most financially troubled states are: Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin. Also, Colorado, Georgia, Kentucky, New York and Hawaii are suffering fiscal problems.