SUCCEEDING A COMPANY'S FOUNDER IS NEVER easy.
Thats what Abhi Talwalkar did when he joined LSI Corp. as
president, CEO and director in May 2005. Milpitas,
Californiabased electronics pioneer LSI had fallen
on hard times, and long-standing investors were clamoring for a
Wilfred Corrigan, the British-born engineer who had run
Fairchild Camera and Instrument Corp. considered
the birthplace of Silicon Valley launched the business
as LSI Logic in 1981 with $6 million in venture capital.
At the time, major U.S. and Japanese corporations ruled the
electronics industry. LSI Logic focused on customized silicon
chips, a niche market; by the late 1980s it dominated the
business. Early in the next decade, it began offering systems
and design tools too. Between 1998 and 2003, LSI acquired a
dozen companies and broadened its product lines as the
semiconductor business contracted. When revenue plunged in
2003, the company cut costs and jobs.
To put LSI back on its feet, the board replaced Corrigan
with Talwalkar, then cogeneral manager of Intel
Corp.s digital enterprise group, which included the
semiconductor giants corporate client, server, storage
and communications businesses.
Talwalkar inherited a company that had expanded into
everything from networking to consumer goods, including
video-processing chips that went into DVD players and the Sony
PlayStation video game console. With so many products, it was
no longer on the leading edge of anything. But Talwalkar
foresaw that people would increasingly use smartphones and
other mobile devices to do things like post to Facebook and
watch movies. So he decided to reinvent LSI as a specialist in
semiconductors and software that would help meet the surging
demand for data storage and networking. Rather than spend
billions on fabrication plants, the company would streamline
the design of its chips and outsource manufacturing.
Talwalkar has been busy: Between May 2006 and this January,
he sold, acquired or merged 14 businesses. One of the biggest
sales took place in late 2007, when LSI unloaded its mobility
products group to Germanys Infineon Technologies for
$450 million. Last year LSI, which now has 4,700
employees, began to turn around. Revenue grew 9.3 percent, to
$2.04 billion, while the semiconductor industry was flat
overall. When Talwalkar took over, LSI stock stood at $6.13;
late last month it traded at $8.66, a 41 percent increase.
The 48-year-old Talwalkars family moved to the U.S.
from Pune, India, when he was five. He spent his early years in
Boston and Portland, Oregon. The Oregon State University
electrical engineering graduate worked at a slew of start-ups,
including Bipolar Integrated Technology, Lattice Semiconductor
and Sequent Computer Systems, now part of IBM Corp.
Talwalkar joined Intel as a contractor in 1993 and rose to
oversee one of the Santa Clara, Californiabased
companys main business lines. A skilled and fiercely
competitive Ping-Pong player, he installed tables at all of
LSIs campuses and started a tournament that now includes
1,000 participants. Senior Writer Julie Segal spoke to the CEO
in New York last month about his turnaround of LSI.
Institutional Investor: You had many
different business cards in your nine years with start-ups
before you joined Intel from international sales to
product development and basic research. What did start-ups
Talwalkar: How to size up a problem, how to use data, how to
build a fence around a problem and diagnose it. I use a lot of
those skills to this very day approaching and diagnosing
issues. Its a very data-driven approach. Thats
probably what I remember the most out of those early years,
other than working incredibly hard and trying to absorb it all
like a sponge.
Your career took off at Intel, a company synonymous
with silicon chips and modern management practices. What did
you learn there?
Discipline. Youre trying to anticipate where the world
is going three to five years from now, because product cycles
are that long. In the case of Intel, where youre
deploying a tremendous amount of capital relative to
manufacturing billions and billions of dollars
you have to get those decisions right. Otherwise youre
stuck with massive capital thats underutilized, and it
has an impact on your costs. The other key element and
its related is strategic planning. Given the
nature of the high-tech industry, you have to think in
multigenerations of products.
Technology is a very cyclical business. How would
you characterize it?
The tech industry is the most difficult industry on the
planet. No other industry delivers twice the value at less cost
every 12 months. The automotive industry doesnt do that.
Health care certainly doesnt do that; it goes in the
other direction. The competitive intensity is horrendous in
tech youve got VCs designed to disrupt established
technologies and product lines.
Its counterintuitive that the technology
industry would be so cutthroat. It requires such brainpower and
Its not as regulated, and I hate to jump on that, but
I think thats a key factor. Theres a level playing
field. Youve got Moores law, which will give you,
simply put, more clay to work with every 18 months, so you can
put more stuff on a single piece of silicon every 18 months.
That allows you to keep sucking in more functionality and
deliver it at a lower cost. That is the base platform for that
competitive intensity. Then theres a lot of new money
being invested into start-ups through VCs looking for ways to
do things differently to solve upcoming problems. Established
companies have to contend with that, so thats another
catalyst for this competitive intensity.
What did you find when you got to LSI?
It was trying to do way too much in too many different
markets. The company did incredibly well in the 80s and
through a large part of the 90s, but in the late
90s the industry around it started to change, and LSI
wasnt able to change successfully with it. That led to a
What did you do first? How did you assess the
I spoke to as many employees as I could in the first 60 days
to gather data. I paraded every business line through a room to
get a sense for the products, their strategies, competitive
positions and issues. Then I took a playbook out of my prior
company: I did a strategic planning session around each of the
businesses and stress-tested each around a worst-case
assessment. I made the assertion that this business was going
to face this set of dire consequences over the next three to
five years. I said, Prove to me that Im wrong or
confirm Im right, and then tell me what were going
to do about it. That helped me to understand the pieces I
had to work with and start formulating a blueprint. Then we
started driving some of the immediate decisions.
What were they?
The management team was completely changed. I felt the
management that we had was well suited for what we did in the
80s and 90s but not suited to create product
franchises for the future. We started getting out of and
selling all our manufacturing assets. We didnt have the
scale to do that ourselves. There were outsourced companies
that had the scale to do manufacturing for a living, and that
was not going to be an area of differentiation for
That must have been painful.
Not for me, because I had no emotion in it. The first
decision we made was to sell LSIs last fab [fabrication
plant], a beautiful fab up in Gresham, Oregon. It was
state-of-the-art for some companies but not quite
state-of-the-art for what we needed. Unless youre
generating $15 billion to $20 billion-plus a year,
you cant have your own fabs and process technology.
Youve got to go work with the manufacturers out
What was one of the key tenets of your
We felt that the growth of digital content, whether it was
consumer or business, as well as the related growth in traffic
on the network, whether it was a mobile network or an
enterprise network, was going to present a strong, secular
growth opportunity for the next ten to 15 years. No one is
slowing down in the creation of data. Even through the downturn
we didnt stop creating data; we probably created more.
Given that LSI had some core competencies and enough clay to
work with to be relevant around dealing with that data-growth
and networking set of challenges, the blueprint was around
centering the company to win in these storage and networking
applications. We had a good position to work with, but it
needed to be shaped. It needed to be added to. We also had to
get out of a number of markets that had nothing to do with
that, where we had no scale.
You made some bold decisions.
Along the way we bought a company [Agere Systems] a
very large deal, a $3.7 billion deal and within
that company was a product line, the mobility products group,
that did chips for cell phones. Well, you know the cell phone
market is a hot market, growing and so forth. But we got out of
that market because it wasnt core to the data and
networking aspects that we wanted to work on. The business had
insufficient scale to compete against the Intels, Qualcomms and
Broadcoms of the world. So, back to my tenets. We sold that
business within six months of acquiring the company.
Talk about how you think about R&D.
One thing is the simple premise that youve heard many
CEOs talk about but not everyone actually sticks to, which is,
be No. 1 or No. 2 in the markets that youre in or
dont be in them, period. Scale, especially in high tech,
is so key because if you dont have revenue scale
sufficient to give you R&D scale, you cant keep up
with this intensity that I talked about earlier. Every nine to
12 months, you have to have a new product. If you dont,
your competition will win your business from your
What trends are influencing your
Data is growing at 50 percent per year. At the same time,
the mobile network is growing even faster. Believe it or not,
its still in its infancy in terms of commerce, business,
entertainment and social networking. As much as we use our
iPhones, theres so much more potential there in terms of
But there are obvious challenges to that,
Its putting a tremendous amount of pressure on the
networks. Network traffic is growing 30 to 35 percent per year,
so its doubling or tripling every three years. But IT
budgets that companies or carriers have lets use
AT&T or Verizon theyre growing maybe 5 percent
per year, so youve got a huge gap. Weve focused the
company around helping to address that gap.
So tablets and smartphones are great, but
theres a technology problem behind them.
We use them every day, but very few people understand or
appreciate the churn and change thats happening in the
background everything that drives what ends up coming
onto those things: all the big data centers that have hundreds
of thousands of servers; all the base stations that are running
around throughout the city dealing with all that
interconnectivity and communication.
Would you do another turnaround?
Its really hard because the challenge that you have in
a four- to five-year turnaround is keeping all constituents in
the boat with you through that period: customers, employees,
the board, investors.