Microchip Technology Inc

Microchip Technology Inc (NASDAQ- MCHP), a veteran provider of microcontroller, mixed-signal, analog and Flash-IP solutions, recently handed over its 12 Billionth PIC Microcontroller to Hitoshi Tatsuno, Vice President of Operation Management Dept. & Purchasing Dept., Nidec Corporation, a manufacturer of precision motors. Rewinding back to 1989, when General Instrument spun off Microchip, nobody would have imagined that in the span of three years, the struggling startup would be recognized as the most successful IPO of 1993. Steve Sanghi, CEO of Microchip, realized that the startup required an approach that would improve all aspects of the enterprise, while involving each employee in the journey toward success. Since no readymade solution was available, Sanghi and Michael Jones, the company's then Vice President of Human Resources, designed a managerial process known as the Aggregate System, which was made famous by their Wiley-published book called Driving Excellence. This solution simultaneously improved all of the company's business processes by aligning and uniting the processes and elements that lead to success. Rather than focusing solely on manufacturing processes, business strategies, or the workforce, Sanghi’s management model institutionalizes and perpetuates improvement across the entire business. Microchip owes much of its current success to the Aggregate System developed by Sanghi.
 
Creating Products That Stand the Test of Time

With most companies that use microcontrollers struggling in a highly competitive market, made even more dilatory by a sluggish economy, many organizations are trying hard to stand out and differentiate their end products. Moreover, 70 percent of these products do not go into production with the microcontroller that they began with. Due to the fact that Microchip employs a “One Platform” microcontroller and development tools strategy, a client can come back to Microchip and easily migrate to a new 8-bit, 16-bit or 32-bit PIC microcontroller to add a new feature to their product, without redesigning the whole board.

In some markets, such as automotive and medical, engineers are loathe to design out the microcontrollers used in their designs, and they look for suppliers who can provide a reliable supply of the same devices for many years. To address this need, Microchip employs an aphorism of never turning a product obsolete. “A customer could have first used one of our MCUs in 1992, and after 21 years that product is still available in large volumes. We have built a strategy where our customers can have the confidence that 10 years down the line, the same replacement product is available,” says Sanghi.
 
By providing flexibility, product customization and specialization, Microchip has maintained client retentions that span over a decade, some even close to 15 years.
 
A Unique Organizational Structure
 
The organizational culture may explain the reason why customers never move to another provider. Sanghi prefers to view the company hierarchy from the reverse angle, with the customer occupying the top position and the CEO at the base. Between whom the engineers, managers, and divisional heads fit into the bigger picture. This is true for the design team or the sales team. “The reason why we flip the organizational chart is due to our culture. We think we get the best performance of people through this structure. When the design engineers, sales individuals and production operators become more efficient, it ultimately leads to growth of the company,” points out Sanghi.

Increasing Performance, Year After Year

Keeping its unique organizational culture aside, what sets Microchip apart is the focus on problems that may sound as trivial as producing a low-cost chip that ends up in applications as simple as a laser pointer, or as intricate as building a chip for an electric car or an advanced automobile engine.  An S-Class Mercedes has 50 chips developed by Microchip embedded throughout the vehicle. Although the microcontroller giant had a few low-key periods along the way, Microchip just garnered its 91st consecutive quarter of profitability—something no other semiconductor company has achieved. The company today serves more than 70,000 customers in over 65 countries, has shipped more than 1.4 million development tools to date, and partners with more than 130 global third-party tool manufacturers. “Our company culture, systems, policies, principles, employees’ strategies and decisions amalgamates as a cohesive energy. This holistic focus improves on every area of our business and has provided Microchip its sustained performance,” Sanghi said.
 
Microchip has recently been on an acquisition spree, with most of them expanding Microchip’s ability to serve the sockets surrounding its microcontrollers on a board—acquisitions that Sanghi calls “elbow out acquisitions”. Although the “elbow out” is often misunderstood as elbowing out competitors, the original definition is to incrementally increase the markets served by Microchip. Examples include RF, power drivers, amplifiers, converters and encryption, to name a few. Roving Networks, a California-based company providing Bluetooth and Wi-Fi modules and solutions; and Ident Technology AG, a German company developing 3-D gesture recognition technology are a couple of recent acquisitions. A partnership with ioBridge, Inc., a provider of cloud enabled software and design solutions, showcases that one of the company’s focus areas is extending the connectivity options for the designers of embedded systems, an area which calls the “Connectivity of Things,” which extends well beyond connecting to the Internet, alone.
 
Moving forward, Microchip has a strategic plan in place to become a 3 billion dollar company. With its current revenue knocking on a 2 billion dollar run rate, and through various elbow-out acquisitions, along with a culture that is entirely focused on innovation and client satisfaction alike, Microchip looks set to continue its tremendous growth curve for many years to come.