Growth Forces Chipmaker to Digitize Along With Customers

By Duff Mcdonald  |  Posted 05-05-2005

Growth Forces Chipmaker to Digitize Along With Customers

Few industries are more sensitive to the ebbs and flows of the global economy than the semiconductor business. That's because few industries source their inputs and sell their products in more places around the world. Austin, Texas-based Silicon Laboratories Inc., a maker of analog-intensive, mixed-signal integrated circuits, is no exception.

The company, which sells to such international clients as Samsung, Sony and Motorola, outsources its chip manufacturing to Taiwan Semiconductor Manufacturing Co. Ltd. And it's been adding customers at an astonishing rate: Since 2001, revenues have grown at a compound annual rate of 83 percent, hitting $456 million last year, bringing in $77 million in net income.

Even as the world goes digital, the need for Silicon Labs' chips—which interact with real-world inputs such as sound and temperature—continues to be substantial, and the company's strong design and low-cost production methods have made it a standout in a crowded field.

From its founding in 1996 by a talented group of semiconductor industry veterans, to its current state as a half-billion-dollar-a-year company, Silicon Laboratories has stuck to two guiding IT principles, says Umesh Manathkar, the company's chief information officer.

The first is that the company wants to manage its growth through productivity enhancements and not merely by adding headcount. The second is that IT systems must be engineered to last. "We plan to be around for 50 years or more," says Manathkar.

Shortly after Silicon Laboratories passed the $200 million sales threshold, management decided that 24-hour-a-day global operations required a robust disaster recovery capability. In late 2003, the company invested approximately $1 million to consolidate several small data centers into a single location with on-site redundant power and Internet connectivity. The consolidation took just four weeks.

"Some of our simulations for new chips can take six days," says Chairman and Interim CEO Nav Sooch. "We can't allow for the possibility that we lose power on day five and lose everything." The result: 99.99 percent up-time on all the equipment in the data center.

The company also established an off-site data center that will allow it to get back to business in as little as 24 hours after a catastrophe. The new location is about 20 miles from company headquarters. "The key for us was to have the disaster site operated by someone other than the crew that manages our own data center," says Manathkar.

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One clear aspect of the strategy to grow the company without a commensurate increase in headcount was Silicon Laboratories' decision, in 2003, to implement a business-to-business program using RosettaNet and electronic data interchange linking the company with its customers, distributors and suppliers.

"We made a decision that we couldn't grow at a manual pace," says Manathkar. And they aren't: The company already processes 9 percent of its routine business transactions—some 10 percent of revenues—using the B2B program, with a goal of 50 percent by the end of 2005, and 80 percent over the next four years. The cost: a relatively minor $300,000 in software, hardware, and man-hours.

Silicon Laboratories also realized that the larger it gets, the larger the potential effects of any mistakes in long-range planning. As a result, the company decided to move from a product-forecasting and scheduling process that involved multiple disparate Excel spreadsheets into a more sophisticated advance-planning system from Adexa Inc., a provider of enterprise business planning software. The goal: to track demand fluctuations in the market, thereby improving the company's responsiveness and reducing manufacturing and supply-chain costs.

The development of the system—which also plays a part in the company's goal of fulfilling 80 percent of orders with what it calls "hands-free processing"—took place in 2003 and 2004 but continues evolving to this day.

"It addresses both day-to-day decisions as well as capacity and order commitments over the next six-to-nine months," says Manathkar. "We've consolidated forecasts, inventory, capacity, materials and work-in-progress information into one system."

Manathkar says the company will use both its B2B initiatives and the planning and scheduling program to go after the 100 or so processes it has identified as candidates for automation, from order entry to shipping to forecasting and supply-chain management. If their success so far is any indication, those 100 processes should start looking for a new company in which they can slow things down.