A Computer Whiz Short-Circuits

By Charles Alexander

Products fizzle and profits plummet at Texas Instruments

During the 1970s, Texas Instruments was a shining star of American technology. The Dallas-based electronics giant became the world's leading producer of semiconductors, calculators and digital watches. Its annual sales quintupled to $4 billion by 1980. More than any other U.S. company, TI was admired by industry analysts as an innovative, aggressive outfit that was up to the challenge of beating the Japanese at one of their best games: consumer electronics.

But now TI's glow is fading like the flickering display on a calculator with dying batteries. The firm's profits are down 55% for the first 9 months of this year. It has laid off 2,800 employees, or 3% of its work force. The price of its stock has plunged 50%, from $150 to $75. TI's once dominant share of the calculator market is being squeezed on the high-priced end by Hewlett-Packard, while the Japanese have cornered sales of economy models. Its attempt to break into the home-computer business has been disastrous. As for digital watches, TI was unable to match the Japanese marketing blitz and abandoned the field altogether.

TI remains the leading producer of semiconductor chips, those tiny silicon-based flakes that are the all-important components of computer circuitry. But profits from this bread-and-butter portion of the company's business are being pummeled by an economic slump in the U.S. and Europe. Because demand for computer parts has dropped sharply, the entire microchip industry is suffering from serious overcapacity that has resulted in fierce price-cutting competition.

To make matters worse, Japanese companies, including Hitachi, Nippon Electric and Fujitsu, are charging headlong at TI's semiconductor supremacy. They have already captured about 70% of the market for one new advanced chip, the 64K RAM (for random access memory), which can store 65,536 separate bits of information and is expected to become one of the most widely used pieces of computer hardware. TI last summer abandoned another information-storage technology, called the magnetic bubble memory, because it never caught on with enough computer makers. The company had invested more than $50 million to develop the bubble memory. Despite these setbacks, TI is ahead of the Japanese in the sale of microprocessors, chips that can perform computations.

While TI still leads the semiconductor race, the firm has staggered badly in its efforts to sell products to consumers and small businesses. Its research and development prowess remains unsurpassed, but its marketing strategies have repeatedly failed. TI's entry into the personal-computer business is a prime example. The dominant companies in that market, including Apple and Tandy, aimed their machines at business professionals who take complicated work home or at skilled hobbyists who seek a versatile living-room computer. TI, in contrast, targeted the ordinary American family for its model 99/4. The machine can play games, teach children vocabulary or keep track of household finances. Yet it was a flop in the marketplace because the price of more than $1,000 was too expensive for most families, while computer buffs considered the product too unsophisticated. Observes Bill Meserve, a computer analyst with the Arthur D. Little consulting firm: "The 99/4 was neither fish nor fowl."

TI has also earned a reputation for pushing its own innovations rather than listening to the echoes it hears in the marketplace. Says John J. McDonald, president of the American subsidiary of Casio, a Japanese electronics firm: "When a buyer wants chocolate ice cream, you give him chocolate. But TI tells him why he really wants vanilla." Two months ago, TI introduced a line of desktop computers for small businesses. Electronics experts were surprised to learn that the new models were not designed to use a popular computer-operating system called CP/M that provides the basis for many of the leading software programs. Instead, TI has developed alternative programs. Analyst Jean Yates of Gnostic Concepts, a California-based market-research firm specializing in electronics, labels this strategy a "basic, critical mistake." Some industry experts believe that TI deliberately chose to disregard CP/M simply because the company did not write the programs and does not sell them.

Such a maverick corporate style has long been a tradition at TI. The company has prided itself on being an industry leader rather than a follower. Its scientists and engineers work grueling hours, urged on by demanding managers, to beat the competition to a breakthrough. A leading electronics analyst calls the TI style "management by fear." A former company executive says that the firm's leadership, from President J. Fred Bucy on down, is too rigid and hurts employee morale.

Nonetheless, the creative tension at TI, without question, has sparked a long string of impressive achievements. The firm has had overwhelming success with the invention of a "talking" computer chip used in its Speak & Spell and other similar learning aids for children. Besides its pace setting research in semiconductors, TI has developed a series of state-of-the-art radar and missile-guidance systems for the U.S. military. As the Reagan Administration's planned defense buildup gathers force, these technologies could become huge moneymakers.

Rather than rest on its semiconductor strength, the company is determined to revive its ailing consumer business. Some industry analysts believe that TI is finally beginning to recognize the importance of developing marketing expertise to match its technological verve. Solving its problems will take time, but the firm is building its future on a sturdy financial and scientific base.

--By Charles Alexander. Reported by Sam Allis/Dallas

With reporting by Sam Allis/Dallas

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