The Third Wave

U.S. entrepreneurs are filling new niches in the semiconductor industry.

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Back in October 1982, T. J. Rodgers was startled by a telephone call from a venture capitalist. At the time, Rodgers was a top research and development executive at Advanced Micro Devices Inc. (AMD), a $350-million semiconductor manufacturer, and the caller -- Stanford Fingerhood -- wanted to ask Rodgers about two former subordinates who were planning to launch a new company. Rodger's response was quick: "If you're giving away money," he said, "why not give some to someone who can take it and run with it?"

Now it was Fingerhood's turn to be surprised. Was Rodgers himself thinking of starting a new company? he asked. The engineer thought for a moment. If his subordinates were branching out on their own, why couldn't he? "Well," Rodgers said, "I guess I'm in it now."

What he had jumped into was the latest wave of start-ups in the semiconductor business, a field that entrepreneurs just a few years earlier had surrendered to the American and Japanese manufacturing behemoths. But as semiconductors have been incorporated in an ever-increasing number of consumer, scientific, military, and industrial products, the emphasis has begun to shift away from mass-produced chips. Today, the market is demanding more short-run, customized, high-performance devices, providing the openings for start-ups in specialized niches that have the promise of growing into sizable industries of their own.

Entrepreneurs like Rodgers and his former subordinates, financed by an innovative mix of venture capital, bank loans, and corporate investments, have launched some 30 new semiconductor companies in the past three years. Even fast-paced Silicon Valley, which saw the birth of the semiconductor industry in the 1950s and the second wave of start-ups in the '60s, has been surprised by the pace of this third wave of semiconductor companies.

Within a week of Fingerhood's first call, he and Rodgers were talking venture strategy at Manhattan's 21 Club. The next day, the banker arranged a meeting with Benjamin Rosen, a former vice-president of Morgan Stanley & Co. and now a top venture capitalist in the electronics and computer industry. Impressed with Rodgers's marketing concepts, Rosen put Rodgers on a night plane to Dallas for a meeting with his partner, L. J. Sevin. Sevin himself is a wily veteran of the semiconductor wars of the mid-1970s, when he was chairman of Mostek Corp., one of the semiconductor industry's spectacular entrepreneurial successes.

On the plane, Rodgers, better known for engineering accomplishments at Stanford University, where he earned his doctorate degree, and at AMD than as a marketing whiz, took out his blunt #2 pencil and began to scratch out on a pad of his engineer's graph paper a rough business strategy for the company that would become Cypress Semiconductor Corp.

The next day -- only 48 hours after his first face-to-face meeting with Fingerhood -- Rodgers laid out his rudimentary plan in Sevin's North Dallas office. Sevin studied the figures, paying particular attention to the all-important return on investment. Sevin remained skeptical and told him only that his plan was "not as bad as I thought it would be," sending Rodgers home not at all convinced that he had won Sevin over.

But after a month of phone calls, questions, and relentless nit-picking, Sevin made a surprise visit to Santa Clara, Calif., called Rodgers, and told him to come to see him as soon as possible. Rodgers hustled over and Sevin made him an offer: He would pay Rodgers's salary and expenses while the entrepreneur-to-be was drawing up a formal business plan. Sevin said he would back the new venture -- if other investors could be found. If the others wouldn't come on board, Rodgers would be stuck without a job.

"What could I say?" the blond, 35-year-old Rodgers recalls in his cramped Santa Clara office. "I shook his hand and quit my job."

Within four months, Rodgers was ready to unveil an intricately detailed business plan, a market-driven, multiproduct strategy that some observers have compared to AMD's.

Not a technological superstar like Intel Corp., nor a manufacturing machine like National Semiconductor Corp., AMD, under chairman W. J. "Jerry" Sanders III, has emerged among the most profitable and successful of the major Silicon Valley companies by carefully adjusting its products and technology to market needs. This market-driven multiproduct strategy, many observers believe has allowed AMD to steer clear of ruinous head-on collisions with Japanese and U.S. juggernauts. And it is the perfect plan for surviving in the new semiconductor marketplace.

"AMD has provided the best model for marketing in our current situation," Rodgers believes. "Jerry Sanders is the supreme businessman. He isn't blurred by an engineer's vision. Everything follows the sales plan. Jerry doesn't make chips to see if they work, he does it to make money. If you keep that in mind all the time, and move fast enough, you can stay out of the way of the Japanese steamroller."

Working closely with Lowell Turriff, a former AMD marketing director and now Cypress vice-president of marketing and sales, Rodgers laid out a multiproduct strategy that will follow the growth markets and avoid key confrontations with Japanese and domestic giants.

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