RW: Gil Amelio started his semiconductor career at Bell Labs where he developed CCD manufacturing techniques, which made them commercially practical. He was recruited to Fairchild Semiconductor where he headed up the MOS division, then he took over the Rockwell Semiconductor operation successfully transitioning it to profitability. He then became CEO of National Semiconductor when Charlie Sporck retired. Finally he was recruited to Apple Computer as CEO, ultimately being forced out in a palace coup. Tell us about your early days, Gil.
GA: Well, it's, you know, simple enough. I was, maybe I'll start with my parents, my mom and dad, met and married in the Italian section of New York. My mom was an immigrant from the old country and my dad had been born here. I was born in 1943 in the middle of the war right before dad went off to go fight with Patton, he was in Patton's third army and we always, you know, my mom obviously worried about whether he would ever make it back or not, but he did and when he did he picked us up and moved us to Florida to start kind of a new life. And so I grew up in Miami, Florida and went to; back in the 40's and 50's when it was still a little sleepy resort town and no one ever heard of it. And went to Miami Senior High School, graduated pretty high in my class and I got a scholarship to Georgia Tech, went to Georgia Tech and didn't have the foggiest idea what I wanted to major in. I just knew I loved technology, so I asked one of the officials of the school, you know, what would be a good, you know, how, until you made up your mind, what could you major in? He said well sign up for physics. It's sort of kind of a general technology thing and that will be a good one and I never changed. I signed up for physics and I just stayed in physics all the way through. So I wound up getting after seven years, I got my bachelors, masters, and PhD and at the ripe old age of twenty-five I went to Bell Laboratory.
RW: Well, seven years is pretty fast to get a PhD.
GA: Yeah, it really is.
RW: I think the average is eleven.
GA: It takes awhile. By that time I had gotten married and started to have a family so I was motivated. I needed to get out and earn some money and so I did it and actually did my PhD work in three years.
RW: So you got your first job.
GA: First job. Bell Laboratories. You know, where it all started, right? And I went into that same part of the building where Shockley and Brittain and Bardeen had been and I went into the device development department, which was the department that was the launch of the chip. And I'll never forget my first day at work. I went, you know, of course I'm twenty-five years old and I'm petrified. I'm now in this place that is Mecca as far as the technology is concerned. Five thousand people in one building, a thousand of whom are PhDs and all of whom are smarter than you are. So, I went in there and I kind of stumbled around signing the necessary forms to get reticulated into Bell, the famous Bell Laboratories and I went to my boss around lunch time or so. They took me out and they bought me lunch and I said, what do you want me to do? And he said this is Bell Labs, you do whatever you want. And that just got very scary like where do I begin? What do I do? So I asked him, he said, well just wander around and meet people, talk to them, you'll find, you'll find a problem, if it's interesting to you, work on it. And that's exactly what I did. And so that's how it all started. I do have one other story to tell you about that time that's kind of fun. And that was Bell Labs had its own form of hazing when you kind of became a new member of this elite fraternity. And, but I, of course I was unaware of it. So when I showed up I mention to you they took me to lunch my first day. Well they took me to this big round table and there were about ten people sitting there and they all very politely introduced themselves to me and so forth. And then the conversation started and other than saying hello and goodbye, I didn't understand a single word in between. Because they each one went off into the most extreme part of whatever program they were working on and of course all the others pretended like they know exactly what they were talking about and had this conversation. And I walked out of there feeling like I'm dead. I'm not going to survive this place, they're going to fire me in two weeks. And it turned out it was just a big joke which they got a good laugh over.
RW: But Bell Labs was such an asset to the United States.
RW: And now it's a shadow of its former self.
GA: It indeed is unfortunately. There was a certain degree of freedom we had back then and, you know, pre-divestiture days that really was very special and if you wanted to do industrial, you know, advanced industrial research it really was the place to be. When I went and interviewed for that job there, getting out of my PhD work, they only hired one out of every three hundred people who interviewed. It was that kind of demand to want to go there so as you can imagine by the time they distilled that down to you know a thousand or so PhDs, it was pretty rarefied atmosphere and of course the algorithm I had was absolutely brilliant and simple. You know, basically what they said was we don't want you doing anything but your work. If you need to buy something, you tell this person what you want and they will take care of it. I never had to sign a paper, I never had to put in a justification form for why I needed a piece of equipment, it just magically showed up, you know, a few days later after I requisitioned it and I went on and did my work. They wanted me to write and publish as much as I could. I wrote a hundred papers while I was at Bell Labs and once a year I had to get up and give a speech on what the hell I was doing. And that's what I did. And that's where I met a lot of the people that ultimately led me to Silicon Valley because of course that's where Jim Earley was before he came to Fairchild. And there was a guy that I also met named John Atala and I have no idea where he is these days, but back in those days he was at Hewlett Packard and he met me at one of those annual conferences. He was also a graduate of Bell Labs. He had come back for part of the review and he was just impressed with, you know, what I had done and the work I was doing and he said why don't you come to Silicon Valley? And I said well gee that's flattering. So I made a trip out here and interviewed him at HP but I decided I was going to stay at Bell Labs. But he said you know, if you ever change your mind, let me know. So after a few years at Bell Labs I was, the only thing you get frustrated about at Bell Labs is that you invent everything but you can't make anything, you know, you can't put anything in production, you can't see it commercialized, you can't see it go out into the world and I was getting frustrated that I wanted to see my, I wanted to build something. So I decided at that point in time it was time to go to Silicon Valley. I remembered this conversation I had with John Atala, I called him up again and by then he had moved to Fairchild. And he was running a group called MOD which you may remember, but it's Microwave and Optoelectronic Devices over on Deer Creek Road down in Palo Alto. And he hired me and he also had responsibility for the labs and Jim really worked for him, so he says well I'm going to hire you and I'll put you under Jim Earley and I said well that's fine, I had met Jim before and I thought that was great. So, that's what happened and that was 1971.
RW: The LEDs came out of that period.
GA: They sure did. And I remember them working on trying to get all the different colors of LEDs and the breakthrough was well we finally got a blue LED or got a yellow LED and of course red was the one that you always got at the beginning there the color was really important and that was the big breakthrough.
RW: So what did you do at Fairchild R and D?
GA: Well I was hired because I had been part of, during my Bell Labs work one of the inventors of the charge-coupled device, which we believed was going to be a fundamentally new electronic device that was different than the transistor or diode or another basic structure. And I was, I guess by that time I had written a lot of papers and given a lot of talks on CCDs so they decided that maybe I was the guy for them to hire. I had been decided I wanted to leave Bell Labs and go seek my fortune in Silicon Valley so we got together and what they asked me to do was start a project on CCD and see if you can't make something we could sell. So that sounded great to me, and the first thing we did was we got Jim Earley and I ran around and we got a government contract from the Navy to develop these things. And what the Navy wanted us to do was to develop an image sensory using CCDs that could see at night, a night vision technology. And that drove us to, as it turned out, fortunately to the very highest performance possible. We had to push the envelop on everything in order to make something that would work at night. So what it forced us to do was to invent. To invent new ways of doing things and to develop absolute cutting edge and out of that came twelve patents that I had plus patents that some of my other team had on CCDs and those patents are now expired but were extremely valuable to the company. And let me just tell you one little anecdote on that is the sort of the strange way life works is one of my patents was for the basic process about how you make a CCD and it turned out that that process was the way the whole world adopted making them. So henceforth and even to this day people still make CCDs the way I articulated at the time. So needless to say my patent was worth a lot. When Fairchild sort of fell apart it wound up going ultimately with Loral, you know, the East Coast part as opposed to the National Semiconductor part. And Loral realized when they purchased it that this patent may be worth a lot. Fairchild, because of all the turmoil, hadn't really pushed getting the license fees on this, but Loral being a little bit more diligent about trying to get value out of what they had bought discovered they had a patent that was probably worth billions of dollars. And so what they proceeded to do was go to Japan and tell every Japanese company, all of whom are now making CCDs, Sony and so forth, and basically saying by the way, you owe us some money on royalties you haven't been paying. And I think the average catch up fee on that was somewhere between two and three hundred million dollars per company. And so I got, needless to say this was litigated and so forth and I was involved in it, but anyhow the patent wound up being worth several billion dollars. If I owned that patent I would be as rich as Ross Perot, then I wouldn't even run for office. That's the story there.
RW: Well there was so much when Fairchild was broken up the individual parts turned out to be worth a lot. Just the real estate alone was quite valuable.
GA: Indeed, I mean that was, I would have to say my most exciting day in Silicon Valley was the day I showed up and my saddest day was the day Fairchild was no more.
RW: What went wrong?
GA: Well, you know, it really depends on when you think about it, if I'm a little cynical what I would say is that what went wrong is in 1967 Sherman Fairchild made John Carter president of Fairchild instead of Bob Noyce because if he had made Bob Noyce president of Fairchild, Fairchild would be Intel. Because Bob had a very clear vision of what he wanted to do and he was bound and determined to do it. And that would have been the best possible thing that could have happened to the company. But if you say okay that was a foregone conclusion all of that's, you know, water under the bridge. What happened in the 70's that led to this thing, I would say there were a couple of, two or three, decisions that in retrospect were probably big mistakes. One was getting into the consumer electronics business and making games and watches.
RW: Of course that was one that we had made.
GA: I'm not blaming anyone. I mean we all made the mistake and we all got killed. But Fairchild was just precarious enough financially where it really hurt the company seriously and as a consequence we wound up under-investing in MOs technology at a time when MOs was taking over the world we were still riding on the strength of our bipolar technology which was probably the best in the world. Isoplanar bipolar was second to none and so we got caught in this famous trap of living off what we had done well but not really obsoleting ourselves with newer technology and so I finally got the task of trying to rebuild, you know, play catch up on MOs as you remember I became Group Vice President of the MOs group, but frankly it was pretty late in the day at that point.
RW: There were a lot of bodies already. I was actually in that group and we would have a vice president every eighteen months come stumbling in...
GA: That's right. I lasted a little bit longer than that.
RW: They would always say we're going to run MOs like a business. And a lot of arm waving and all this stuff and then disaster. It turns out eighteen months isn't enough time to turn it around and so they'd be out and some new guy would come in and, oh it was just terrible as a worker bee there. It was just awful. These guys... and they just kept getting worse and worse and worse. That's before you came so I can't include you in that.
GA: Well we finally made a little money in the division, but it wasn't a whole lot. The problem was we just didn't have the capital equipment budget to really get caught up with the leading edge so we, you know, we were kind of bunting and stealing second base and doing all the crazy things you do to try to get by, but it wasn't a way to really build a strong enterprise. And another thing, I think we made one other mistake, too, and that was we went into the dynamic RAM business at a time when it was already well populated with a lot of other people and we probably wound up losing fifty million dollars, which in 1970 was a lot of money.
RW: Of course again, everybody did that.
GA: Everyone did that and so it was understandable why we did it, but timing is everything, right, so what you had was you had this disaster with the consumer electronics and right on the heels of that was this disaster with dynamic RAMs and suddenly we were just flat out of money and we were now a takeover target. And we got put into play by, you know, a hostile takeover and we wound up finding a white knight which was Schlumberger and that was the end of that story.
RW: Ed Gould, Gould of course the hostile guy and it turns out that's where all the money is, is in batteries. In retrospect, you know, you make calculator or watch. That's the expensive part is the battery. And you don't want to make IC's when you can make batteries. Well the Schlumberger days, were you there during the Schlumberger takeover?
GA: I was there in the early part, the early days. They had given us golden handcuffs, which meant I really wouldn't get the benefit of the buy out unless I stayed for a couple of years. So I just gritted my teeth and decided to stay and try to make a go of it. It was difficult.
RW: What was the deal with Tom Roberts?
GA: He didn't know anything about semiconductors. And I'm not sure he really cared to know anything about semiconductors. You know, he was caught up in the metaphor that the chip was the oil of the electronic era and, you know, Schlumberger knew how to mine the oil industry so maybe they could use some of the same things they did there to take advantage in the semiconductor industry. It sounded great when eloquently presented, but the reality is that when you're running a business on a day to day basis, you've got to make a thousand microscopic decisions all of which mean you have to have a very detailed knowledge of the business, none of which management had and management wasn't frankly interested in learning or taking advice from those of us who kind of knew the business. And it just got worse. I mean everyone who was an observer, I know you were, just saw it get worse and worse and worse and finally I just threw up my hands and left.
RW: Well I've interviewed Don Brooks and he indicated when he went there, who of course was the last Fairchild...
GA: It was after I had already gone.
RW: Yeah, and he was the last guy, and he said there were all these little fabs none of which was big enough to really be a product and there was tremendous product line, tremendous size. Everything was being made but none of it with enough focus and enough volume to be economic. So, that was his take on the whole thing. But, I know we... Robert's had this presentation that said the only two semiconductor people that would survive into 2000 and it was TI and Fairchild and, you know, forget Intel, forget National, forget Toshiba, those are the only guys that are going to be left because they had more money to spend. This was like the Vietnam War, we have more bombs therefore we're going to win. That was just terrible.
GA: Underestimating the intellectual capital that was much more important than financial capital in building that.
RW: Well there were also age discrimination issues, were there not? Weren't there people that were laid off because they were older?
GA: I think that was true, yeah. I think you can go around and see a lot of the guys who at that point in their life were fifty, you know, fifty-ish plus or minus, and they found they didn't have a job, I mean whether it's Andy Parkisimi or any of the other guys, you and I both knew well they were all in that category.
RW: So anyway, so much for Fairchild, you got out before it crashed and you went to, what National?
GA: No I went to Rockwell International. I went to take over the semiconductor division of Rockwell. It's kind of a fun story. Actually, if I look back on my career and I think about what are the things I'm most proud of and I can list a number of them, but on the business sense as opposed to a technical sense, business sense it was this sort of the resurrection of Rockwell Semiconductor and clearly was the most accomplishment that I was most proud of. Rockwell had a semiconductor division that actually had founded and launched from the earliest days of the chip business, so it was a long tradition there. But they never really were a factor in the business because they ran it a lot like they used to build military aircraft. It was very different and they just didn't get how to be successful in the field even though had great technology. And so they had lost money for eight straight years. The board directors of Rockwell said get rid of this thing, I mean it's killing us. So Don Beale, who was president of the company said look, I want to give it one last effort. And he authorized the search to find the guy who was going to come in and save this, that wound up being me. And I went in there and Don said look, I'm going to level with you, the board really wants me to get rid of this damn thing. I want you to go in and look at it. He said I want you to come back in a few months and tell me if it can be fixed or not. If it can be fixed I'll back you all the way, if it can't be fixed, damn it, tell me, I will take care of you, you will never have to worry about, you know, having a great job and being adequately compensated, but you've got to level with me. So I went in, I started work on, literally on my fortieth birthday, March 1st, 1983 and that was the day I turned forty and that was the day I took on this awesome task, we talked about that a little while ago. And so what I did was I went and I studied the thing for a few months and in May, Don called me up and asked me to come to their corporate headquarters in El Segundo, California and give them a report. And so I said well, I've got some good news and I've got some bad news. I said the good news is that I think you can get this thing turned around, the bad news is it's going to take two and a half to three years and probably cost us a lot more money and if you don't have the appetite or the board doesn't have the patience for that then you may not want to take it a try. So, Don being the guy he is sort of scratched his head and said, let's go for it, let's go, I'll take the heat, you just do what you got to do. And so the first thing I did was they were trying to compete with Intel, they were making memories and microprocessors, said there's not enough money in this side of the planet to afford that strategy so I said we're going to stop that strategy. What we're going to do is we're going to go down the middle of the road with standard process technology and we're going to differentiate on the basis of circuit innovation and we're going to come out with new exciting circuits that other people aren't doing and we're going to therefore create a differentiated position. So they said well that sounds great, what are we going to make? And I said well I don't know yet, I got to figure that out. And I wandered around and I found this little group of guys in the bowels of one of the buildings and they were working on modem chips. And the approach they had come up with was brilliant. And I said, that is a winner. We're going to put this entire division behind that modem project and that's what we did. And of course as you know from 1983, by 1985 in those two years, Rockwell had eighty percent of the world market for modems, the entire world market for modems.
RW: You were shipping chips to Japan.
GA: Japan in the early days, Japan was larger than the United States for us. We were one of the very few people who were very successful there. And then we just kept building on that and building on that and building on that and today that division has been spun out of Rockwell and is now known as Conexant. It's now Conexant. It's a one point seven billion dollar company with a market cap of seven or eight billion dollars and that was that failing division that I took over.
RW: A few or maybe the only one of the aerospace companies that was successful. Hughes used to be a power, Boeing and Lockheed actually had...
GA: I think they did two things that were different than what everyone else did was one, they hired a guy from Silicon Valley who knew the industry and number two they left him alone to do what he knew how to do instead of second guessing on every damn decision he made. And I give Don Beale all the credit for that. I mean he had the courage to make that kind of a decision and take the heat from the board and not continually look over my shoulder and guess about why I was making every decision I was making.
RW: So Rockwell was a real success by dropping lines that were competitive and getting into something that really nobody else was in.
GA: What we had done was, just to give you the essence of the idea because people sometimes wonder what was it that you did that was so different than what other people, because other people had tried to make modems. What we did was we came up with a custom design digital signal processor, which we could then program to be any, to implement any modem algorithm. So instead of having, you know, fifteen designs for fifteen kinds of modems we had one design that we changed by the programming, can make it fifteen different modems. So now you went to the situation that the semiconductor guys loved, standard set of chips that you made in tons of volume, we're making millions a month of this one basic chip and the only thing that was different was the programming. And that's how we were able to drive the cost down and so what that did was that immediately lowered the cost of making modems, we went out into the marketplace, I did not hold up a price umbrella, in fact I priced aggressively. I used to go to our customers and I'd say well this is the price this year, but next year it's going to be twenty-seven percent less and I'll write you a contract to that. However, how many devises you get next year is going to depend on how much you buy this year. And that was the deal we made with all of our Japanese suppliers and we stuck on that twenty-seven percent curve for eight years and we took modems from being a couple hundred dollars a piece to being a few dollars a piece in that period of time and of course, no one could catch us. Once we got on that curve it was the experience curve all over again, which TI made so famous and we just implemented it very well.
RW: The beauty of the implication was it wasn't speed sensitive, so having one that ran at a gigahertz, nobody needs one that runs, so you can use the older equipment and older FAB.
GA: That's exactly right. We milked the FABs we had and frankly we started, we did another thing that was sort of pioneering, I decided that outsourcing some of our wafer FAB made a lot of sense. So I actually had a plan in place to outsource up to thirty percent of our volume so that when the economy went up and down I had the ability to survive that even on down turns and that's what we did. To this day I think Rockwell still outsources about thirty percent.
RW: Which has now caught on. Motorola is saying they're going to do that.
GA: Yeah, everyone is kind of doing that, but we started that in 1984, about a year after I got there as an explicit strategy for managing return on assets. We were saying okay, how are we going to maximize our return on assets, well the best way is not to have any of those assets sitting idle. How to you avoid having idle assets when you've got peek demands you got to worry about? Well you'd use this strategy. So we had penciled it all out, decided this was a great way to optimize return on assets and we went and we did it. The other thing we did that was different was we also did upscale integration. That is we sold board level products. So we'd not only sell you chips but we also sold you board level products. And so the idea was if you wanted a modem but you didn't want to hassle with making the card, what we would do is we would make the PC card and we would guarantee its performance. So now if you're a facsimile manufacturer, you worried about making a fax machine, you don't want to have to horse around making this modem, we said we will guarantee this modem that it will work anywhere in the world. And if it doesn't work we will fix it at our cost so it does work. And so it was a default decision that now I had more added value I was riding on that silicon. So in terms of revenue per square inch, or per square centimeter, I was now driving up my revenue, you know, per wafer because I was selling added value product. And we just roared right up through, then you know what happens in the semiconductor business when your revenue per wafer goes us. Read Intel, you know, that was the story and that's what we did.
RW: Well in fact Intel's strategy is very similar, they make mother boards and, huge volume.
GA: I don't know if it's true of not, but it was kind of a coincidence in time that Intel adopted that strategy about a year after I had lunch with Bob Noyce and told him what I was doing. And it's probably totally coincidental but that in fact is the accurate time sequence.
RW: That's great. Well how did you end up at National then after...
GA: Well what happened was I got promoted at Rockwell to be a group president and so I kept my semiconductor division, but I now took on two large telecommunications businesses and one of which was another turn around situation, the transmission systems division out of Dallas was in trouble. I won't go into the details but all the classic mistakes had been made and I was trying to fix them. And I had finally gotten the business turned around and enjoyed the telecom industry an enormous amount. There were a lot of wonderful people in it and so forth but I kind of missed the hands on semiconductor activity, you know, like I had, even though I ran the semiconductor business, I had since hired another general manager and he was running it on a day to day basis and it just wasn't the same. And so when National started looking for a CEO my name came up in the processes, I guess perhaps not surprisingly because I was on the SIA board. There was, I don't know, twelve or thirteen of us on the board, and I had served on as Rockwell's representative on that board and of course there was Charlie Sporck and Jerry Sanders and Wilf Corrigan and all the other guys there, and so when Charlie was thinking about I got to hire my successor, who am I going to hire, he sort of looked around the table and he said, you know, maybe Gil would like to, you know, change horses. So as the old saying is, they made me an offer I couldn't refuse. And I came back home again and I loved it and while, you know, that Rockwell Semiconductor turnaround, like I said, one of the great successes in my career. I'm pretty darn proud of what I did at National because I took that business which had lost, you know, four hundred million dollars in the prior five years and when I left, my last quarter before I left we made a hundred million dollars of profit in one quarter. And that was the kind of business we were running at that time. So we grew the business, actually focused it more narrowly and dramatically increased the profits.
RW: Well how did you find it when you, Charlie had been running it forever and so what did you find when you got there?
GA: Well, I found, actually things quite different than what I expected. All of us knew Charlie as a great manufacturing guy. So what I assumed I was going to find when I got there was these awesome factories that may be not very innovative in terms of the chip they were making, or maybe they were just making commodity things and so therefore that's why the company wasn't profitable but this awesome factory. In fact, the factories were not really in that good of shape. The yields were really below industry standards, the quality was below industry standards, and there was just generally a lot of problems. On the other hand, I found that there was a lot of good innovation going on in the bowels of the company that was probably under-appreciated and so it was almost the opposite of what I expected to find. But one of the things that Charlie had done because of Charlie's nature, is he was a disciplinarian. You did not argue with Charlie, you know, you saluted and went to work or you didn't have a job the next day. So one of the great advantages I had, and I wish this on any CEO when they go in to do a turnaround, is an organization that all I had to do was say once what I wanted it to do and it would instantly there would be a flurry of dust and people working on that. And it made the turnaround so much easier, of course, I had exactly the opposite experience at Apple, but we'll get to that in a minute. But National I would, you know, I went in there and I figured out and I sort of scratched my head and I said okay, and after, it actually took me four months. In four months, June, I called the staff in and I gave them a presentation. I said here's my presentation, I've been studying the company for four months, here's what we're doing wrong, here's what we got to do to fix it, I need you guys to sign up and we went to a retreat and I gave about a four or five hour presentation based on all the work I had done in those four months. And that was the map of the strategy to change it around and I said okay, this is what I want you to do, okay, Dick Sanqueny I want you to do that, Randy Parker I want you to do this, Curt Bond I want you to do this other thing over here. I just gave out the order and boy they just turned to, dug into it, did it, and in a year from the time I showed up at National we turned profitable and never went unprofitable again for the remainder of my term there anyhow.
RW: What were those changes?
GA: A more narrow focus, we killed a whole bunch of R and D projects. There were too many different projects going on. We narrowed down to the core business. We divided the company into eight basic divisions. The company had been centrally organized when I got there. I decided that we, and there was just a lot of proliferation of product but it was an adequate focus. So I divided into eight basic divisions, kept sales centralized, but I decentralized marketing and engineering, and in some instances the factories, picked good people to put in change of each one, heavily incentivized them and had them go focus on that, and I had them come back to me with a core strategy. So one of those guys was Bami Bastani. Bami had the job of turning around the memory business, which was a disaster. And I had Bami come back to me with a strategy, we honed it down and honed it down and honed it down until it was narrowly focused and he went and he attacked it. I spent a fair amount of money on capital to modernize every plant. I dramatically modernized every plant that National had and we turned the corner. We had a sixty million dollar profit swing in the first year in memory alone and that was just one division. And so by getting this kind of focus, by insisting on rigorously worked plans and by putting the blue chips on our bets, you know, we got the thing focused. I changed a lot of the way we managed our financial systems. I didn't feel like we had enough detail knowledge of what our product costs were. I went in and over hauld that fairly substantially. I think rejuvenated our R and D and remember when at that time what we called the R and D center was the Fairchild R and D Center, remember we named that in honor of Fairchild. And so that was close to my heart and so I got very involved in getting that focused. I put a good guy in charge and we narrowed the focus on that as well and just generally upgraded, employee programs, upgraded the facilities, and it all worked. But the most important element, it really belongs to the people of National, is that what they did was, you know, when I basically laid out this plan, they saluted and went to work and they did it. And that was Charlie's legacy. The legacy Charlie left was a very disciplined workforce and any CEO that's trying to reposition any business, that's the thing you hope for because that is the most important thing to have on your side. You can get through almost any other problem if people will follow your lead.
RW: Yeah, Don Brooks told me in his interview that that was his big problem at Fairchild that there were people that wouldn't do it and didn't want to see it happen, so they would sabotage many programs that he was trying to turn around and he ran out of time and money.
GA: One of the things I've often said and I wrote a book on management and I also wrote my book on Apple, but the book on management actually is my better book of the two and was nominated as one of the Business Books of the Year in 1995. It came in third out of about a thousand books, so I thought that was pretty good. But in any event, in there what I talked about is the necessity to having discipline in businesses and how important discipline is in order to make a company successful. And you know you read these books in search of excellence and all these things and they will talk about everything but what they don't talk about is the necessity to have that rigorous discipline. And the way I described it sort of in an analogy is I say what you really are trying to do is like laser light, you know, the difference between laser light and regular light is that all the photons in laser light are lined up and aimed in the same direction as opposed to being scattered. Well in your organization if you can get everyone aligned and going in the same direction at the same time and the same way and the same place, you've got the equivalent of a laser light and there's not, nothing that you can't overcome. And what we were able to do at National was fairly quickly, over a period of only a few months, get people aligned and focused and executing. And if they don't do that, even the simplest problems become insurmountable.
RW: Although most people wouldn't call the dot com companies disciplined.
GA: I think that's probably true.
RW: And yet they're earning lots of money.
GA: But I don't think there's any one who feels like that's going to go on forever. At the end of the day and what I tell people today is I'm doing venture capital now. I have a simple model that I put forward. Obviously, I want to make money for my investors, but the way I'm going to make money for investors I want to build great companies. Now, it's important that I say that, build great companies, I'm not looking at just making fancy financial deals or buy this today and sell it tomorrow and arbitrage it or any of that stuff, and to build great companies. And to build great companies you've got to have a good foundation. A good foundation means you've got to have a business model that has real revenues, real profits, delivers real customer value, and has the ability to defend itself against would be copiers. And I will only invest in businesses, including dot com companies, that fit that set of criteria because ultimately when the day of reckoning comes and it will come, those are the companies that will survive and all the rest of them are going to be just distant memories, and so you know we're going through a once in a millennium kind of a event. We are literally seeing before our very eyes the birth of a new type of economy and it's literally that powerful. An old world is dying and a new world is being born and the analogy I use when people ask me why are stocks so valued and why is the valuation what they are? I say it's really simple, I said, you know, it's the Oklahoma Land Rush. You know, you fire the gun and suddenly there's all this territory to go out there and you're not asking people how profitable they are today, what you're asking them is how much of that land have you been able to rope off and defend and we're going to pay you for that because we believe that if you get enough land and you defend it well enough and you picked exactly the right territory to plant your flag, that that's really going to be worth a lot to me and that's what's been going on. So people have totally ignored the fundamentals because they're saying have you made the land grab. But obviously that ends after a certain period of time and wouldn't it have been nice a hundred years ago to be able to buy California coastline at ten dollars an acre? I mean people would have thought you were crazy for spending so much money on that un-farmable land, but wouldn't it be nice knowing that today? So that's the philosophy behind it and that's what's going on.
RW: Well getting back to National, so you got it profitable, focused, and all that, and then you thought you would have some fun and go to Apple.
GA: Well you know I was having fun at National, but Mike Markkula asked me to join the board of Apple in 1994 and I went on the board and I started going to board meetings and listening to the trials and tribulations of Apple and I got more and more frustrated and more frustrated and I'd get in the meetings, and I said, but, but, but, have you thought about this and have you thought about that and you thought about this and I'd get these one liner kind of answers that didn't represent really penetrating thought as to how to go out there. I just was so frustrated and I'd bellyache to my fellow directors in quiet coffee breaks or what have you and one day, Peter Crisp, said to me why don't you come over here and be CEO? And I thought about it and I said, well, you know, I could do that. And finally they decided to make me an offer I couldn't refuse, which they did and I went over. It was a high risk but the reason I took it wasn't the money that they offered me, which was substantial, I was a Mac user and I had loved the Mac and I was seeing it literally die before my eyes. And I said, I remember going home and telling Charlene, I said, you know, if I can go in there and save this company, it'll have been worth it. It'll have been something really important and I've spent thirty years in high technology, done a number of turn arounds, you know, I've got technical credentials, there's probably not a lot of guys who have all the weapons, you know, at their disposal that could go in and fix Apple. I was probably one of maybe five or six guys who were really qualified to go take that job on. And so I just said I just couldn't say no. It was like if the President of the United States asked you to come and take an assignment, how would you say no? You'd have to say yes. I took on the assignment with that. What I found in doing that was something that was the exact opposite of what I found at National. Where at National I had a lot of discipline, at Apple I had zero discipline, absolutely none and that was the frustrating part. And that took about a year to fix and it was a painful year and it was a very expensive year for me personally as well as for the company. But at the end of 1996, the year of 1996, we went from being a loose band of people who were doing a thousand different things and none of them talking to each other to being an organization that was implementing new programs successfully and on time and in the first few months of 1997 we introduced six new products right on time, right to rave reviews, high quality as opposed to exploding power books, which we had when I got there. And so we had cleaned up the factories, we cleaned up the quality, we cleaned up the R and D, we went from three hundred R and D projects to fifty, which was still too much but at least it was going in the right direction. I killed Copeland, the largest, we had five hundred engineers who had worked two years on Copeland. I walked in and shot it. And having shot it, someone asked me okay, what do you want us to do now? I had to therefore kind of put myself personally in charge of the software program and to find what turned out to be System 8. I think a lot of people who are experts in the Mac would say System 8 is what saved the company. And I personally led that effort and so it was all the dirty work that needed to be done. By the time we got into '97 the company was clearly moving in the right direction and I guess the rest, as they say, is history.
RW: I think you were perceived as an outsider and you're taking away a lot of the fun.
GA: Yeah, I think that's probably true.
RW: Because, you know, it's not do what you want to do, it's let's do this.
GA: Let's do what the business demands. Yeah, I think that's right. I think I was definitely viewed as that, but I think at the end of the year I think that was probably not true anymore. I think that by that time the people had come to accept me. Even the people I had hired as part of the Next acquisition were beginning to look at me as one of them before I left. And I remember telling the board of directors in one of my last board meetings to Apple, I said look, the die has now been cast, I said now you just have to wait, it's sort of like giving someone a shot of penicillin when they have the flu, you don't get well instantly, but you know you've done what you can do and you just wait for the medicine to take its effect and that's what I said, that's where Apple was. We've got the pipeline loaded with all these new products coming down, the new Wall Street Power Book, which is the power book they still make to this day was in the pipeline, the I-Mac was in the pipeline, the G-3 and G-4 were in the pipeline, all of those in the pipeline, I said, believe me, these are the right products for the right time, but you'll just have to work it through the system. And sure enough that's what happens. I think a lot of people today, if they look back on my era, and I still get letters almost everyday, people who look back and say, you know, I've gone back and looked and all of the things that you did laid the foundation for what happened today. And I'm just sorry you didn't get more credit for that, but that's the way it is.
RW: Well, you're a venture capitalist now and would you invest in a semiconductor company today?
GA: Yes, I would and in fact I am, I frequently look at semiconductor companies as something to invest in. However, clearly I'm looking for not just another me too, I'm looking for something that's got some differentiation to it, but in fact I am looking at semiconductor companies as we speak.
RW: But the economics of wafer FABs, they cost over a billion dollars and they don't last very long, they don't have much of a lifespan.
GA: Well, you can go with the FABless. When I think of a semiconductor company, I don't necessarily think of one that has its own FABs, although that's do-able. But I still think, you know, contrarian view, that there's room for the new semiconductor companies including having their own wafer FABs. And that will happen again, so watch.
RW: Certainly Taiwan has been successful.
GA: A miracle.
RW: But all the money that the Europeans have poured into that and it's all been a failure, but maybe Thompson.
GA: Thompson's been great.
RW: But other than Thompson it's a lot of money down the drain.
GA: But it's a great industry, it's a growing industry, and if you're smart and capable and you've got a good idea and you got ability, you're going win.
RW: Well it was certainly good for us.
GA: It was great for LSI Logic and it was great for Intel and it was great for a lot of companies and it was great for Rockwell now Conexant, I mean look at the shareholder value we created with that division in that period of time. And you know this because you started LSI Logic around 1983, right?
GA: Okay, '81, what were people saying in 1981?
RW: It's all over.
GA: It's all over, forget it, what the heck are you doing starting another semiconductor company, there's no room, you've got National, you've got TI, you've got Fairchild, right?
RW: And the fact is we blew them all away, even Intel tried to compete with us and couldn't. So it is amazing.
GA: So the point is, it's going to happen again, it's going to happen again. There's going to be some part of the business, not broad based semiconductor, but some companies that are focused on certain piece of the business that will go out. One right now that's being run by one of my graduates from National, Anadigics. Anadigics stock has gone up about fifteen times in the past twelve months. They're focused on very high performance chips that are primarily compound semiconductors, but they're also now moving, branching into high performance silicon devices as well. A very narrow focus, a very narrow niche, they're addressing the high performance need for, you know, gigabyte communications and they're doing a better job than anybody in making that happen and they're creating an enormous amount of shareholder value. There's room for companies like that. They were nobody two years ago. They're now a multi-billion dollar market cap company. It's going to happen. It's going to keep happening.
RW: Well that's great. Well thanks very much Gill.
GA: My pleasure.