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My Personal Journey

The Biggest Little Industry You’ve Never Heard of Turns Fifty

Posted on the HuffingtonPost earlier

Chips touch every aspect of our lives. You use chips in your car, in
your phone, in your TV, in your fridge, when you play a video game, when
you text, Skype or blog, in the bar code reader at the grocery
checkout, when you take a photo, as your luggage is routed through an
airport — any time you use electronics today you are using chips.

Now I am not talking about potato chips, I’m talking about
semiconductors — integrated circuits. Those small, intricate pieces of
silicon, doped with chemicals in factories in the U.S. and Taiwan, that
use logic and memory to take action for you. To shoot the zombie, or
control the brakes on your car. To route your phone call to your mother,
or tell the government what you just said on Facebook.

The semiconductor industry is a $300B industry, dominated by global giants like Intel, Samsung, Texas Instruments and Qualcomm, and it’s an industry where the complexity of its products doubles every two years. It costs billions of dollars
to build the factories where the chips are built and millions of
dollars to make the first one of a new design, all so that the chip in
your phone or your car can be cleverer than a mainframe computer was a
few years ago, but only cost a few cents.

None of this would be possible without the computer scientists and
physicists who work in the industry that makes these complex designs
possible. That industry is Electronic Design Automation — EDA — and it
is celebrating its fiftieth birthday this week at the Computer History Museum in Mountain View, Calif.

When the first integrated circuit was designed at TI by Kilby in 1959
design was done by hand. But once the idea was out, a new industry
emerged creating sophisticated software programs running on computers to
help humans create more and more complex designs.

Today integrated circuits are less than 1 square inch in size but are
three-dimensional and have many, many miles of metal interconnect on
them, where every line of metal carries a signal like a wire in your
house, but is thinner than a fraction of a human hair. They can perform
millions of operations per second and store the Encyclopedia Britannica
in your fingertip. And a human mind could not fathom the complexity of
these chips without software programs to control the design and
simulation of the chip before it’s built.

The EDA industry is the group of companies, and brilliant people, who
make the amazing computer brains in the devices we take for granted
every day possible. They build software to model how to turn analog
signals — like your voice — into digital bits. They build simulators
that use physics and maths to model Maxwell’s equations and predict how
electricity is going to move through different materials, at different
speeds. They simulate the memory cells that store data, they predict how
complex logic will work with the different inputs you give it. The
chips being built now have features so small that you can’t use light to
expose them any more (the process is a lot like the old photographic
process) so they use math to adjust how the light will behave and
compensate. It’s rocket science built into software.

But despite being such a profound building block of our modern
electronics, EDA is a relatively small industry. With revenue of $7B,
the industry is dominated by two California Bay Area companies: Synopsys
and Cadence, who work alongside many small, highly innovative
specialist companies to solve the hard design problems (and yes, the
small companies get bought up by the big companies over time). The
industry is small because the number of companies than can actually
afford to design chips is low even though we all use more electronics
every year. But it’s a healthy industry where the leading companies are
growing and generate strong operating margins and where new startups
emerge every year.

And it employs the brightest engineers. Graduates with EECS degrees
(electrical engineering and computer science) from colleges like
Berkeley and Stanford and MIT walk the halls. The executives are all
engineers too because the pace of change of the chip technology is so
fast you need to be able to talk with your customers about what they
need in the language of technology.

Men or women, they’re mostly a nerdy bunch. But tonight, at a banquet to raise money
for the Computer History Museum, they’ll be dressed up and celebrating
their love of one of the most fascinating technical areas you can choose
to work in. And next time your phone, or your camera, or your TV makes
you gasp in wonder think about the software nerds in California who
design the tools, that design the chips, that make your device magical.

Boards

Why activist shareholders travel in packs

Have you ever wondered why activist shareholders travel in packs? It’s because they are significantly less effective alone—just like any other minority on a board.

Activists (often hedge funds) accumulate a position in a stock because they want to make change happen at a company and, by making change happen, they will make money on their investment. It may be that they think the company is being mismanaged and so is undervalued against its potential. It may be that they think it should be broken up and the pieces sold off. Or it may be they think the board is incompetent and by driving change they can increase shareholder return.

Daniel Loeb, who runs the hedge fund Third Point, is currently in the news for the aggressive strategy he pursued to get onto the board at Yahoo!. He accumulated 5% of the stock, demanded 3 seats on the board, was rebuffed, found a fatal flaw in new CEO Scott Thompson’s inaccurate resume, and then used that chink to drive a wedge into the board room for himself and two of his nominees. Dan has become famous for his investment track record and his pithy letters eviscerating the management and boards of the companies he targets.

Carl Icahn has a long history of launching campaigns against companies, and like Dan, often wins—like he is doing at Chesapeake. Shareholders delivered a bruising rebuke to Chesapeake Energy’s board on Friday and although the board had agreed to replace 4 directors with Icahn’s and Southeastern Asset Management’s hand-picks, shareholders still withheld their votes from two key directors. In this case, two activists (Icahn and Southeastern) teamed up and acted as the lightning rod to help shareholders express their dissatisfaction with the board’s oversight of the company.

But why, you may ask, do they travel in packs of 3 or 4? Dan Loeb is a smart cookie and no shrinking violet—why does he need to bring two of his guys onto the Yahoo! board with him?

The answer lies in how inefficient and/or difficult it is to be alone and an outlier on a board. Boards aim to be collegiate, making sure diverse opinions are aired while also providing good financial oversight of the company. They want to get to unanimous recorded decisions in the end (no matter how contentious the internal discussion) and disruptive behavior is frowned upon. If you want to make change happen as a board member you need to develop support from other board members first or there will be no further discussion or vote.

If you are an activist that wants radical change, that very change is probably unpopular with management and the existing board or you would not be agitating for it as an outsider. Your new ideas will die on the vine unless there is someone else in the room to pick up your idea, expand on it, help you build momentum and overcome objections and, in the end, second your motions to ensure a vote.

Further, if you can get three people on the board together with the same purpose they can create significant momentum behind an idea. And sometimes, these activists can take advantage of directors’ natural tendency to act as individuals, and so create divisions among directors who have not yet figured out the need to unite.

This is why Starboard Value (which owns 5.3% of AOL) is proposing three nominees to the AOL board to challenge the strategy. They are also trying to line up proxy advisory firms ISS and Glass Lewis to support their new board members as this will influence how major shareholders vote. They want to be sure that if they get elected they can force a change in strategy at AOL by acting as a team on the board.

When you’re a voice of one it’s very hard to make change happen. It takes two to get a discussion going, and when you are just one it is too easy for you to be shut down—or if you will not back down—be labeled as disruptive and so have your effectiveness reduced. Activists know this and so, like any smart hound on the hunt for a kill, they travel in a pack. They show us the importance of having a group to represent alternative points of view on a board.

Odd, then, that so many Silicon Valley companies whose major customers are women have no women on their boards (like Facebook), or, if they have one, check the box and think they are done. Especially odd since we also now know that having women directors on boards improves return on capital for shareholders.

Because of the nature of how boards work, having token representation, whether it’s an activists point of view, or gender-based point of view, is not enough. Activists are showing us the way. It’s time to get more qualified women onto leading technology company boards.