August - 2000 - issue > Cover Feature

In 1990, Steve Sanghi was invited by venture capitalists to run Microchip Technologies, a company that was burning $10 million a year. By the time he took it public in 1993, it had a market capitalization of $80 million. Now it towers around $5 billion. And not only has Sanghi stopped the bleeding, but he’s managed to hack into the market shares of Intel and Motorola.

The company was sold by General Instruments Inc. in 1989 for next-to-nothing to venture capitalists and other investors. Under the leadership of Sanghi, Microchip has been posting record sales every year. In 1994, it had a sales of $137 million, in 1995 it went up to $208 million and last year it soared to $496 million sales.

“Thereafter, there was no looking back,” says Sanghi. “Profits steadily started pouring in. Our market share steadily climbed. Out of the 196 initial public offerings that year, ours was rated the best-performing stock; it has given a return of over 500 percent. Today our market capitalization is over $5 billion.”


Tapping the Market

How did he do it? “I saw a hole in the market,” Sanghi explains. “Nobody was supplying it, not Motorola or Intel. They had a lock in the market for customized, not programmable micro-controllers. My bets paid off. It was as if I had won the jackpot. I pushed heavily into the market, it started turning in profits.”

Betting on the 8-bit micro-controllers market has paid off big time for the company. Micro-controllers are tiny computer brains, and are used in many household appliances, automobiles, computers, telecommunication devices and many other day-to-day gear in this wired world. Microchip products sell below $10, many for less than $2. The company’s low overhead and tight-fisted manufacturing policy has propelled it steadily to rank among the leaders in this crowded market worth $10 billion a year. Asked how far his company controls the market, Sanghi says, “We are closing the gap to Motorola very rapidly. Nobody controls the market, but we are number-one in field programmable micro-controllers. We have 40 percent of the market.”

And, according to Sanghi, the market for micro-controllers is growing rapidly. “There is a huge demand, and it is difficult to cope up with it. There are five main vertical markets for it: Consumer, automotive, office automation, industrial and communication. These days, everything is done through remote control. For that we need micro-controllers,” he asserts.

What is driving this demand? According to Sanghi, “There may be one microprocessor in a computer, but there could be as many as a dozen or more micro-controllers. One day there could be as many as 20 of them.” He predicts that as the world embraces the new economy the usage for semiconductors will soar. “Cell phones, remote controls, PCs . . . everything is based on semiconductors.”


Starting Out

Sanghi earned his bachelor’s degree in electrical and communications degree from Punjab University, and his master’s in electrical engineering at the University of Massachusetts. Even as a student, he dabbled in business. “Entrepreneurship is in your blood. Entrepreneurs are not made. In college, I became a student adviser, tutoring 21 Algerian students who were on scholarship. I did everything to get that little bit extra money,” says the native of Chandigarh.

During school, he was associated with Batelle Columbus Laboratories sponsored “Radioactive Atmospheric Research Project,” on which he completed his masters’ thesis. After graduating, he joined Intel as a design engineer.

Sanghi steadily rose to the position of general manager of the division in 1986. From that time until 1988, revenues of the company went from $200 to $330 million. Even after such a measurable success, Sanghi left the company. “I wanted to try my hands in startup companies. Intel is huge and it is a little bureaucratic,” says the 44-year-old CEO.

“In 1988, I joined a startup company called Waferscale Integration, a four-year-old startup company,” recounts Sanghi. “A year later, we wanted to merge with Microchip Technology. I was in the due diligence team. Waferscale had good idea and technology. It would have been a good marriage. But we were unable to sell the proposal to the board of directors. So the merger talk broke down.”

“When I went to venture capitalists with the idea of starting a semiconductor company, they asked me why not join and turn around Microchip Technology,” Sanghi recalls. And, he’s been going strong ever since. It was for the first time in 10 years that he took a vacation recently – a 3-week trip to Europe.


Innovation

Microchip Technology also has fabrication facilities in the US and Bangkok, Thailand, and a technical and sales office in China. Speed is critical even in this seemingly slow of industries: rather than dropping an estimated $1 billion for a new plant, Sanghi bought a chip fabrication facility in Tempe, Arizona from Digital Equipment Corp. for $6 million. “There is no time to construct new sites,” Sanghi comments. “It will take another three years for production to start. So why not buy an existing plant and reap benefits from it within a year?” As the demand for the company’s embedded processors rose, Sanghi, in June, agreed to acquire a semiconductor manufacturing complex in Puyallup, Wash., from Matsushita Semiconductor Corp. of America.

The Arizona-based company has also secured a new $100 million credit facility, expandable to $150 million, from a syndication lead by Bank One and comprised of Wells Fargo, Bank of America, Northern Trust and Banca de Roma. With ample cash and soaring demand, it would not be surprising if the company acquires another site to increase supply and catch up with his competitors. After all, Sanghi has what puts him in the category of industry trendsetters and corporate leaders: a fresh vision, and the ability to look at old problems from new angles.