MILPITAS, Calif.–In the summer of 2011, a lone semiconductor startup went “old school,” as my colleague Dylan McGrath put it. That's when he wrote about Touchstone Semiconductor getting $12 million in venture funding, poised to make a splash in–of all markets–analog components.
To some, it may have seemed like watching a car crash in slow motion, with the brake-less vehicle careening toward a stand of huge trees, the occupants blissfully unaware of their fate. These were former analog veterans starting a small company to take business from huge, entrenched players in the analog space. For one of those analog veterans, Touchstone CEO Brett Fox, it was quite the opposite. In fact, it's been an exhilarating ride so far.
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To date, the company has rolled 35 products into the marketplace and will finish calendar 2012 after adding another 25 to its portfolio.
“We got a lot coming,” he said, including new analog comparators and amplifiers. The company also is entering the ADC market place and adding to other product lines. Next year, DACs and power management devices. In a July interview with our reporter Ismini Scouras, Fox said his company would go after “ everything in the signal path .”
“Suddenly, we start looking like a full-fledged, catalog, broad-based analog supplier…in essentially three years a time. Not bad,” he said in an interview at Touchstone offices here, a stone's throw from Interstate 880 and a warm stroll down the street from Linear Technology. In 2010 there were six designers in the company, today Touchstone has twice as many, averaging 20 years' experience and roughly 10 patents apiece. Fox and company are pulling in people from Maxim and Linear, adding one new designer a quarter.
I asked him about competition, the nature of innovation, and venture capital investment. Perhaps not surprisingly, Maxim, his alma mater, figured prominently.
Q : Part of your strategy is to go after places where Maxim has moved away from or taken its eye off the ball. You're not competing yet with Linear. What happens when that happens?
A : I think Linear's a great company to work with. They help you in multiple ways. My experience from my Maxim days, is Linear made us a better company. When you look at their products, they're fabulously engineered. So what does that do to you from an engineering perspective? It pushes you. It means you got to do the right things to win. From a product and pricing perspective, Linear doesn't bomb the market. Linear says, Hey this is our part, this is what you're going to pay for it, customer, and take it or leave it. That's a great company to compete with because they're going to push you in the right ways and they're not going to push you in the wrong ways, they're not going to do stupid things to hurt the marketplace. It also means you better do things right or you're going to get clobbered.
Q : Is there any of that manufacturing or packaging you'd like to bring in house?
A : The manufacturing? I don't see any value in it. I think it's one of the big changes in our industry. And I think it's one of the very positive changes in our industry in that when you look at the foundry technology that's out there today and compare it to the foundry technology that was out there when I started in the late '80s, and Maxim was fabless in the beginning and a lot of people forget that. We were using these horrible foundries. We had third-rate technology which was really disastrous and somehow we overcame all of that to build a company and we bought a foundry in 1989.
Fast forward today and look to the technology available at TSMC. Look at the announcement that Analog Devices made in conjunction with TSMC a couple of months ago…which is available to everybody including us it puts anyone who wants to do analog develop easily on part … with any in-house technology except for very boutique-y things that maybe Maxim wants to do. That's flattening. It's not the differentiator any more. The differentiator is can you define the right products and can you design them. And then the ability to market and sell effectively. That's really the big change.
Q : You guys have been a success story in a very difficult market. But you're not seeing semiconductor startups. Economies don't grow without electronics. What does that mean? Is it a bad thing?
A : Is is a bad thing. It's sad, it's shortsighted, it's all of those things. The argument is: Well software is where all the innovation is. Well, there has to be innovation in hardware to keeping funding the software piece of it. You can say all the existing companies are going to do the innovation, and I don't really think that's true. Go back to the Maxim example. Maxim almost by definition is going to be focused on what Apple needs or what Samsung needs and to keep up with them because their design cycles are so short it limits their ability to innovate.
But the world's not static; the world's changing. and somebody's gotta go after those things and that's where startups typically come in. They're going after the areas that are less mined. what does this problem exist.
VC's created their own problem. look at what's being funded in the late '90s. And look at those companies companies were basically one-hit wonders..they basically had one product. Those products would come out maybe silicon would wiggle, maybe it would work and they were able to sell those companies for hundreds of millions of dollars. It was kind of like the classic bubble peak. CSs keep funding the same thing and, guess what, it didn't work anymore. So you get into the stage of awol, “nothing works.” People forgot there was another way to do it, which we understood.”
Q : You make a good point and there's that school of thought that says innovation will come out of existing companies. But it almost can't, right, because it's the whole Clayton Christensen thing, right?
A : I know you were going to go there, it's the innovator's dilemma.I love that book.
Q : You can't think past your profitability.
A : True disruption isn't about going after big markets. It's going after small, non-obvious market and then they turn into big markets and you come up from the bottom.
Look at Maxim, for example, think about the pyramid of customers. Maxim is going up and up that pyramid, right, and they're focused right now right at that tip. And they're saying and you know this has to go on in a company like this if you're doing $250 million with Samsung you have to be saying … well i don't care if I lose some of these customers to Touchstone. Then they wake up one day and all they have left are those top guys and you could argue oh great that's all that matters but no it doesn't. Because now you've got all these other companies innovating and doing it with us and others that service them. And Maxim eventually–and this isn't going to happen any time soon–but eventually and in the long term–if they don't adjust–dies.