Interview with Bernie Vondershmitt
April 28, 1995
San Jose, California

RW: Well, we're here today with Bernie Voderschmitt. Bernie thanks for inviting me over. Why don't we start out, tell us about your early days. I understand that you went to school in the proverbial one room little red schoolhouse.

BV: Yes, I actually was born in the state of Indiana, grew up on a farm, attended a one room schoolhouse where there were eight grades and one teacher. And then went to a local school, high school, where we had ninety students in the freshman class and I thought I had been promoted to a very high level of education. And after spending four years there, left home and went to an engineering school called Rose, at that time, Rose Polytechnic Institute, which was a private engineering school in and around Terre Haute, Indiana. And because of the fact that part of that was during World War II, I graduated in about two years and eight months by going to school every month of the year. And then, went into the Navy, stayed in the Navy for about two and a half years, and then had briefly worked for a company which is now extinct called RCA Corporation, returned to RCA after serving my duty in the Navy and started as an electronics engineer, design engineer, and participated during the glory days of RCA when black and white television was being developed, when the fight took place between CBS and RCA as to how color would be implemented. CBS had a rotating wheel, mechanical rotating wheel and everybody was afraid we couldn't get enough insurance to put that into the home because of the danger of being around it. David Sarnoff, who was very, I would say - I'd put him in the category of visionary; he said that we would do a great injustice to people if we didn't do this electronically. And over a period of about a year and a half, after CBS's system had been approved, they were given a reprieve to come up with a demonstration. Mr. Sarnoff said - appointed a man to conduct the direction of that, which consisted of building a color picture tube, a new transmission methodology because of the fact that all the information had to be packed into six megahertz because that was the spacing, that the FCC had approved and had to be demonstrated by transmission from New York City to Washington D.C. And indeed that was accomplished, oh within a period of about eighteen months. There were no limits on the budget, everybody worked as hard as they could, and that to a large extent, was the beginning of colored television.

RW: It was really the same standard that is used today.

BV: Same NTSC standard that's used today, that's correct. Now things have improved substantially from the standpoint of display devises, namely the colored tubes and the detail, the resolution and of course, but the fundamentals are very much the same as we developed over a very short period of time. RCA had a very difficult time developing and having colored television accepted in the marketplace, so all these things took place in around 1953, '54 timeframe. And the market - to develop the market and get it accepted took to the early 60's. 1960 was about the first time that RCA turned a profit. And after that decided they were going to have a good cash cow and which it was for them - decided to compete with a company called IBM and get into the mainframe business. They tried that for a period of about six or seven years and then in 1971, decided that they were not going to win. And then that was sort of the beginning of a weakness in the company. But in the meantime, the top officer in the company had been changed - Mr. Sarnoff - David Sarnoff gave up his job to his son. And his son decided to make RCA a conglomerate. And that basic move where they got into four or five totally unrelated businesses, defocused the management and led it in 1985 basically to the sale of RCA to General Electric and the RCA building was changed to the GE building and what remains now is actually nothing identifiable except perhaps the master's voice. Other than that, I don't think there's anything hardly still remains of RCA.

RW: Well the RCA that we know today, for example, in digital TV, that's actually Thompson, a French Company.

BV: That's correct.

RW: And they got a logo.

BV: That's correct and that's been the - that will be going forward for people who are not capable of using cable because maybe it's in remote areas or it's not economically feasible to supply cable. That will be a - we think a very important thing going forward. Again, it is now of course owned - Consumer Electronics Division out of which that came is now owned by a company called Thompson, a French company who took over the Consumer Products Division.

RW: Tell us about when - you were there when the transistor was invented, what happened at RCA?

BV: Of course the transistor was invented in 1947, somewhere around Christmas period where three scientists from the Bell Labs showed the action - proved the action of a solid state device for amplification. And that was really the beginning of solid state business as we know it today. RCA, at the time was working in that area, the David Sarnoff Research Center, but clearly not yet advanced to the point where Bell Labs had advanced to. But immediately we of course were in the Sarnoff Center and RCA did a great deal of work, spent at that time a significant part of their budget in developing solid state devices but were focused on many other things at the time, one of which, at that time, was competing with colored television, which turned out to be a very good return. But actually finally got into the commercial business of solid state devices sometime in the '59, '60 timeframe - introduced their first integrated circuit, which happened to be a linear device and of course that's primarily because it was consumer oriented and actually built the first device that went into a TV receiver. That was about 1963 and actually announced commercially being in the business to sell it to outside customers in that time frame. The progress within the solid state operation was primarily driven again by the research centers and in the late 60's when the business had evolved into becoming a very large percentage of the solid state business, at least in the IC area, was for digital and at that time one of the primary leaders in the business was, turned out to be Texas Instruments. And Texas Instruments had a group of digital circuits which were built with bipolar technology. RCA felt that they had missed the opening to participate in that market. In the mid- in the early 60's, a couple of scientists at again David Sarnoff Research Center came up with the process and the ability to have simultaneously - both were referred to as P and N channel transistors - simultaneously or monolithically on the chip. And in 1963, '64 timeframe, demonstrated using that and actually built a series of products that were not commercial but demonstrated the feasibility of being able to do it. And then between the '64, '65 timeframe and in the late 60s, RCA decided that complementary MLS or CMOS as it's known today would be the right thing to proceed in the digital area.

RW: Well today, 1995, nearly every digital circuit is CMOS - it must be ninety percent.

BV: Yes, the bipolar business today is down to about somewhere between five and seven percent if you exclude linear and certainly in the digital area, it's well in excess of ninety-five percent.

RW: So RCA had the lead.

BV: RCA really had the lead in the early 70's, but again after really the demise of the ability or the attempt to compete with IBM, they decided that they are going to have the next great consumer product, which they referred to as video disk and it was actually going to be video on a disk, but it had one characteristic which didn't fair well in the marketplace and that is you could play back, but you could not record. In the meantime, while that was going on it attempted to be marketed, VCR's came into being, which of course had inherent ability in the capability of recording and playback. And that then led to the demise of videodisks, which was written off at another very major write-off somewhere in the region of almost a billion dollars.

RW: Well, Roy Pollack previous, he was in charge of that operation, was he not?

BV: Yes, Roy Pollack had the responsibility of consumer electronics group at that time and videodisk was actually one of the several divisions that was reporting to him.

RW: He - I had worked for him when he was at Fairchild and where he came close to completely destroying Fairchild MOS operation. So he was experienced in disaster I would say.

BV: Well, yes, I would - having worked with him for some time, I can relate to that. But it was a difficult - video disk was a difficult challenge and perhaps it could have been successful from a technical standpoint except that you need two things. You need a great product and then you have to be careful that the marketplace will accept it. And the Achilles heel of the videodisk was the lack of being able to record. And that's what led to the conclusion by the Board of Directors of RCA at the time that they had no option except to write the thing off. And it wasn't very long after that in 1985, when the corporation was sold to General Electric.

RW: So all these forays into other businesses took money and focus away from semiconductors.

BV: Clearly the defocusing and the lack of appreciation of where the semiconductor business was going and what its potential was, even though the technology was very fundamentally sound, led to under-investment to support other products to demises the - getting into the mainframe business and the expenses that were incurred against that and the write off of some six hundred million dollars. And then another, about ten years later, a major investment, well over a billion dollars, both of those were detractors from some of the mainstream electronics business that RCA could have supported - one of which was a solid state business.

RW: Now what was your position at that time?

BV: In my last seven years at RCA, which was 1973, 1972 to 1979 I was the general manager of the Solid State Division.

RW: And so could you see the lack of investment having an affect?

BV: Couldn't get capital, couldn't obtain capital to implement some of the process technologies that were developed at David Sarnoff Research Labs, were also unable to expand the business from a marketing and sales standpoint as we knew we had to do. And as a matter of fact, I made a suggestion, very strongly, that we should sell the business. And the licensing people at RCA said that would be a disaster because this is a leading edge type of thing and we can't get the licensing which to a large part was contributed by the Japanese because RCA in developing black and white and then color were a major instrument in setting up the Japanese as the leading edge in consumer electronics, where RCA had the technology but didn't really have the marketing from a worldwide standpoint. And what they did is they sold the licensing and totally avoided marketing worldwide and confined their marketing basically to the U.S. And that was another very vital strategic mistake as far as it led to the demise of the company later on.

RW: So they had - they invented color TV and CMOS and blew it.

BV: Blew it. That's correct.

RW: So you saw the handwriting on the wall...

BV: I saw the handwriting on the wall and I decided that - the nail in the coffin was in 1979 an acquisition of Beneficial Finance, which is a consumer finance company. When I saw that, I really recognized that this was really the beginning of the end and I decided that this was a good time for me to leave.

RW: So what did you do then?

BV: I decided that since I had run a business the previous seven years, well actually previous ten years I guess, it was just that the last seven years I'd run the solid state division, I decided that what I ought to do before I get another job is I ought to find out how you're supposed to do this from a business standpoint. And I took a sabbatical for about a year and nine months and got a business degree a Master's in Business Administration. And then from there on moved to Zylog, a Silicon Valley company where I was responsible for microprocessors and...

RW: Were you there during the Z8000 battle - 8086, Z8000 and 16,000...

BV: I arrived when it was a battle to try to license the 8000 to various people. And it was attempt made to license the 8000 with A & D and this was the October 1981 timeframe. And for some reason or other at that time it was concluded that A & D was better off siding with a company called Intel, which led to some fairly interesting things, which finally were resolved somewhere around the first week of 1995 and that sort of brings us up to date. But in the meantime, Zylog was a subsidiary of a company called Exxon or Exxon Enterprises. And it had some of the characteristics - it had initially graced Zylog with an enormous amount of cash and then a contact executive from Exxon Enterprises then concluded that what Zylog should learn about is something called cash flow and decided that maybe what we ought to do is force these people to run their business in a proper way and on a step function basis, basically squeeze all monies coming into the company. And said if you can have your own - if you can have zero or greater than zero cash flow, you can do anything you want to. And in the meantime, a company called LSI Logic in the late 70's, early 80's, was putting a business together and was referred to as Gate Arrays, the primary product, and a few of us were looking at this at Zylog and we said this is a great product from an engineer's standpoint, but there's probably a niche business in that, that if you can make it a standard product through manufacturing and have it then personalized by the customer through software, that we had hoped to develop, we could probably find a niche business that could amount to something. We knew at the time that it probably, although we didn't' know yet how to implement it, we were blessed to have a very brilliant engineer in the group and we got together and he in a matter of about a month, came up with an idea of how to implement this. So we decided it's worthwhile given the environment at Zylog, that we set out on our own. And we felt that although the odds were not highly favorable because to go from a concept to something reduced to practice would be a fairly long journey. But we thought it was worthwhile trying. At the time you begin anything, if you look at the hurdles, you've never started. So you just sort of have to knock down one idea - one hazard after the other until you finally get to the point where something looks as though maybe it's viable and maybe even the customer would be interested in it. And we had a long gestation period, primarily because of the fact that we had to develop both hardware and software. And from the time we actually were able to raise money and at that time this was late '83, early '84, if you had what was considered to be some kind of an idea and if the VC guys thought that you had a chance at it, you could raise money with fair ease.

RW: So how much did you raise?

BV: We actually raised four point two five million dollars to start the company.

RW: All from venture capital?

BV: All from venture capital. Basically it was a little bit different from that. At that time there was some tax breaks that you could get some - there were some partnerships at that time and we got about a million dollars from that, but the rest of it all came from VC's. We had three VC's that supplied the basic money and another VC that was able to raise money, about a million dollars, from fairly wealthy individuals that got some tax breaks from the investment. And, we picked four and a quarter million dollars because we thought that that would be enough to demonstrate feasibility. We figured it would take about that much money and we actually almost made it. We unfortunately had to raise a second round of funds during 1985 and some of the people that remember 1985 will recall that 1985 was an extremely difficult time in the semiconductor industry. And, we started raising money in the March - April timeframe and we finally consummated in getting eight million dollars, but at a very low price, whereas the first price that investors paid was a dollar. We had high plans that we would get two dollars for the second round, but the environment - economic environment and particularly the semiconductor industry was not very kind at that time. And so we settled for a dollar and a half and we had payables out to as far as we could stretch them, but sometime just about that Thanksgiving period, we were able to raise eight point three million dollars and moved on from there. And well of course when you first go from zero to eight point three million dollars, you think you've got a lot of money. And actually that money almost, with very limited additional input, got us through and got us to the point where we got zero cash flow.

RW: You didn't actually build your own fabrication plant, is that right?

BV: That's correct. One of the things that we looked at is the fact that when we finally came up with the implementation of how this thing was going to be done, what we decided is that we always had to be at the leading edge of process technology, the finest feature size, because silicon is such a major part of the cost of the device. So we felt it was extremely important for us to always be at the leading edge and we felt that there's no way that we could build a FAB that we could use for three or four years because the lifetime of it would be typically a year and a half and we would have to write it all off. And that's what led us to the fact that this is what we have to do, we have to be with somebody else who can use the facilities and therein was born the concept that we would use a third party, a FAB that we would have a relationship with and that's what actually led us to that.

RW: If you think about it, it is crazy to build one of these FABs. They cost now up to a billion dollars and they have a lifetime of maybe five years. And that's a lot. You've got to generate a lot of cash flow to pay, just to have one. It's like an elephant in your bedroom.

BV: As a matter of fact, five years is probably being optimistic as to how long you can use it. And so partnerships and close relationships with founders is probably one of the most important things that you have to do to be in this segment of the business because it requires such very advanced manufacturing process.

RW: So your partner is Seiko?

BV: Seiko is our primary partner and we've worked with them now for eleven years. And I can truthfully say under these conditions that if we had our own FAB, we would probably have been very much less successful because we wouldn't have been able to have first of all the technology, number two, tolerance that they had had for our demands going up and down and therefore their filling in other things, for example SRAM products, which kept their loads fairly even, but if we had only our own FAB, we couldn't have had it balance anywhere near as much.

RW: So are you their largest customer?

BV: We're by far their largest silicon customer.

RW: So they get something out of it as well.

BV: And they use these devices that we make - process drivers - processes have changed substantially between DRAMS used to be the drivers, but the DRAM processes and the logic processes have so diverged that there's a limited number of things that you can use from DRAMS as process drivers for logic. So these products that we have with them, we - they make mass program Gate Arrays but that's a poor process driver because the consistency of the product that you run through it is changing every day. The test conditions are changing every day because of the different code, but with these products you run them month after month after month and it's an excellent way to bring up a new process. And so we work very closely with them and we push them very hard. We're right now just introduced, within the last year, six tenths of a micron three meter, triple air middle process, where will this summer will be a point five micron three layer meter driven by our own devices and we will be pushing them on to point three five over the next year.

RW: Well you did something that I think it was probably the first, when you gave them an advanced payment. Was that the first time that...

BV: That's correct.

RW: ...that was done? What was your thinking on that?

BV: Well, we needed something. The thing we needed is for them to install a special process and for that we felt it was only fair that we would give them rights to that process to use as they saw fit and they would install a special process for us and we told them that we thought we could - their requirements and our requirements together would be sufficient level to justify doing it.

RW: That's good. So now you started a company and you've been through it all, what does it take to be - what sort of a person is needed to be an entrepreneur and take a chance like this?

BV: Well first I think the most important ingredient is you have to be a masochist. That's - I think that's almost a requirement. I think you have to have - be willing to undertake a lifestyle which denies you a number of things for a period of four or five years. You can't live like a normal human being because of the time demands and the things you have to worry about. You become so obsessed that you have to be willing to make a lot of sacrifices. You need to have an ability or luck to be able to get some very good people into the company because the contributed value that we make, the way we are structured, and it's quite true in most startups, is the intellectual content of what's contributed is by far the most important thing. We don't do routine things, the manufacturing part of it is - that we do is fairly routine, but the marketing, the selling, and particularly the product development require that you be able to attract and hold the most creative people and very dedicated people. And we think that, although that's easy to do in the first year or two of the company, to sustain growth and to sustain staying ahead of the rest of the pack is extremely important to be able to attract good people and keep them without high turnover.

RW: Well, so now that you don't have the big founder stock and so you don't have the huge financial incentives, how do you, I mean - what culture have you developed that keeps these people and attracts them?

BV: I think right now the - a large part of the people and certainly that's personally true from my perspective is to be able to win against some very strong odds - the pride in being able to satisfy customers, have customers say something positive about what the product you have, the engineers are very professional. We have many build software and hardware engineers in the company. The thing that drives them, we think, is the improving, the improvement and the commitment to improve the products that customers can very carefully use and develop equipments. We think that's what drives it. We think that the environment that we've created and the culture we've created is to try to be very open, tell the good news with the bad news, communicate fully what the competition is doing so we don't become complacent. I would say at this stage in the game, we've been moderately successful in the company. I would say the staying power that you need to go forward has a great deal to do with being able to keep the professionals feeling that they are on an ongoing basis, doing a super job. And the reason for that is because when a company rises above and starts actually making some money, the only way to sustain that because of the very severe competition in the business, is to keep cranking out new products with better attributes that customers can use and particularly because of the relationship that the customer has with the software to be able to design that and provide that in a very simple way for a new customer to use and get up to speed in a matter of a day or two. And that broadens the potential customers that you can have and therefore raises the market potential.

RW: Well when you started the company, you realized that you might fail. Did that concern you?

BV: I think it concerned us but we were so busy that we didn't have time to think about it. You just - if you're going to start it, you sort of have to have the feeling you're going to succeed and the only thing that will separate - there is a couple of things that you need. You need a product that's unique and then you need to make sure there's a market for that product. And then after - if you've got those two ingredients, for sustaining and expanding the business, the best committed sales organization that you can put together, and it's that latter thing that really sustains you. Service, we have an organization chart in the company and the top of the organization chart are customers. Second level are employees. The third level are shareholders. The fourth level are the Board of Directors. And we think that's a very, very important ingredient.

RW: Well just think if RCA had had that attitude for example, they could be Intel today.

BV: RCA would have had that attitude - all the things that they had on their side, with a great resource, and again this was people at the David Sarnoff Research Center, the ideas poured out of there, if they could have then reduced the practice and introduced it to the marketplace, RCA would be a twenty billion dollar company today except, other ; compared to being out of business.

RW: Yeah. Well it is truly amazing isn't it that people don't understand that their only success lies with the customer and there are people, although much less now, I think American business has wised up a lot, but it's something that seems to obvious and yet it's overlooked.

BV: It clearly, on an ongoing basis, separates the successful companies from the also-rans or those - even those that fail - clearly to recognize that the pay - your paycheck comes from the customer. And I think, frankly over the last ten years, the semiconductor industry has grown very much to recognize it. And I think that's part of the boom that we're seeing today in the industry - that we all are pretty sensitive to the fact that if we have this great technology, but great technology is not by itself going to do the task. It is the products that provide value to system manufacturers that keeps us going. And I think the industry has matured a great deal in recognizing that.

RW: It's a young industry, in our lifetime it's gone from being invented to being a big business.

BV: 1947 to 1997 is fifty years and I'm not sure that there is any industry that has seen the progress in that period of time that comes close to the semiconductor industry.

RW: Well we've revolutionized the world, that's for sure.

BV: Even to the point of our appliances and how smart they are and particularly to the enabling technology and will be on an ongoing basis for the cars that we drive. I mean a lot of the things that we have now, the comfort factors and safety factors in automobiles today, are to a large extent the responsibility of the semiconductor industry.

RW: Yeah. Well in communications in the Gulf War are both - Bush and Saddam Hussein were watching CNN first time in history.

BV: First time we could see a war unfolding in front of us.

RW: And they would interview Bush and then Saddam and they could have a dialogue. It's a great pleasure talking to you and thanks for taking the time.

BV: Thank you very much Rob.

RW: Bye - bye.