CEO of Mentor Graphics Walden C Rhines reflects on a career spanning four decades in the semiconductor and electronic design automation sector, where there is currently potential for momentous growth.
We’re sitting in the business lounge of a hotel on the Mediterranean coast in Tel Aviv. Walden C Rhines, universally known as Wally, has flown over from the States to attend a sales conference hosted by the Israeli division of his company Mentor Graphics. Rhines, who has been CEO of Mentor since the early 1990s, seems to be happy with life today, which is understandable as the company has just closed off a fiscal year with $1.2bn of revenue on the books, along with “all-time records for earnings per share and operating profit… all the financial parameters, in fact”. This is the culmination of five years of continuous growth, “so it’s a good time for a company in an industry that tends to be volatile”.
Ranked third overall in the EDA market behind Cadence Design Systems and Synopsys, Mentor has done well to come back from a near-fatal collapse in the early 1990s to a position of enviable strength. “Mentor is unique,” says Rhines, “in that no EDA company has ever gone to the pinnacle, stumbled and then come back. It’s a function of the structure that when you have a large fixed-cost base of people, if your revenue ever falls too quickly you can run out of cash or get into trouble.” Most technology companies that hit a rough patch are acquired or disappear in some other way. But Mentor climbed back and today is one-third of a triumvirate of EDA giants sometimes referred to as the Big Three.
“This year we’re slightly below Cadence in revenue, but we’ve been ahead of them for two out of the past four years. Synopsys is ahead by another 30-40 per cent. But, fundamentally there are three companies that have 80 per cent of the EDA industry and we are one of them.”
More importantly for Rhines is that “we are a company that places great importance on leading-edge and emerging technologies, while choosing carefully what we do and making sure we do it better than everyone else”. He backs up the extravagance of his claim by saying: “Whether we have the largest revenue or not, 90 per cent of our revenue comes from areas of design where we have the number one market share.”
Mentor is different from the other two members of the ‘Holy Trinity’ in that it started by engaging with electronic system design, “working our way down to transistors. Today, half of our revenue comes from systems companies in automotive, telecoms and aerospace while 35 per cent comes from system products such as PCB design, wiring, network analysis, embedded software - things that traditional EDA companies don’t compete in at all”.
“The reason this is so important is that as we look to the future, we see that growth will come from new problems that turn up in what is what is already a fully automated process,” says Rhines. “Traditionally, EDA grows a little faster than semiconductor R&D, but the systems industry is far back in the evolution of its automation. That’s growing at two or three times the rate of the semiconductor industry in the application of EDA, and so is a much larger business.”
Today the EDA business is worth $6.5bn globally, 2 per cent of the total semiconductor industry revenue. It’s been this way for two decades, but Rhines is keen to point out that at the same time this figure “is less than > < half of 1 per cent of overall electronic systems market revenue, which is closer to $2tr. So, if you had 2 per cent of that market, you can see there’s $40bn out there, and that represents an enormous opportunity.”
At 67, Rhines can press a reasonable claim to have seen the whole of the digital revolution from its earliest days. He says that there is “a great value to be associated with having seen many similar analogous situations over the years, where you can identify how something new can be similar to something that has happened before”.
Another benefit from having been around the industry for so long is the “set of relationships around the world that tends to build until late into your career. You find that you know so many people - in the semiconductor industry in particular - and yet, it seems like it’s a group where everybody knows every one, ending up in different positions, doing different things”.
Describing the nature of Mentor, Rhines says that the epithet he would use “above and beyond is integrity”. Corporate buzzwords like this, he admits, are used by everyone, “but I think in the case of Mentor, it’s a reality”.
When Rhines first arrived at the EDA company in October 1993, he identified there were problems with the products, the response to which was to hire more people to deal with the issues “because they felt an obligation”. What Rhines finds so interesting about this is “if you go to a company with technical problems you can always get new technology. But if you go to a company that has burned its customers, failed to meet its commitments and decided not to take responsibility for its actions and has not been faithful in its contracts and relationships, then you can never recover. While Mentor was in a difficult situation back then, it was recoverable, because integrity had been a benchmark of the company”.
The question Rhines gets asked most is what made him, a little over two decades ago, jump ship from the monolithic Texas Instruments to the ailing and by comparison rather small Mentor Graphics. Until that point, Rhines had been executive vice president of TI’s Semiconductor Group, sharing responsibility for TI’s Components Sector, and having direct responsibility for the entire semiconductor business with more than $5bn revenue and 30,000 people under his management.
During his 21 years at TI, Rhines managed the company’s thrust into digital signal processing and supervised that business from inception - with the TMS 320 family of DSPs - to become the cornerstone of TI’s semiconductor technology. He also supervised the development of the first TI speech synthesis devices (used in ‘Speak & Spell’) and is co-inventor of the GaN blue-violet light-emitting diode (now important for DVD players and low-energy lighting). He was president of TI’s Data Systems Group and held numerous other semiconductor executive management positions.
“The CEO of TI was from the defence business,” says Rhines. “He was 55 years old, and at the time I was running the semiconductor side of the company, which was a large share, but not all of the company. I was 47 years old and he told me that he expected that I had other ambitions.” He intimated to Rhines that he anticipated being in his position at least a further decade and so “if I wanted to consider other positions, he wouldn’t stand in my way”. The problem facing Rhines was that it was hard for him to consider other opportunities: “If you went for an interview it would end up in some journal. And I wasn’t anxious to leave. But I have always been attracted to big problems and Mentor had big problems.”
The whole decision hinged on whether Rhines considered himself a TI ‘lifer’, or wanted to do something else. Twenty years down the line “we still have some problems. All companies have problems. But in Mentor’s case the original problem was much longer than I had anticipated. The company had bet its future on a totally new architecture and they had burned their boats so that there could be no return”.
“Version 7 of the software had got frozen and over the next four years the challenge was to bring out Version 8.0, which earned itself the nickname ‘Version late-dot-slow’. It was quite a desperate time: the company was bleeding cash and the product was not working well. Most importantly, as a consequence of everyone in the company being put on the problem of making 8.0 work, there were no innovative things on the shelf. I was surprised by that.”
Among his many academic and vocational qualifications, Rhines holds a BSc degree - in fact, his first degree - in metallurgical engineering from the University of Michigan. So could he have predicted the trajectory of a career in executive management in the electronics industry?
“In engineering, as in many fields, your education gives you the basis to go in many directions. Was there an exact prediction of what I was going to do? No. But I was set on becoming the CEO of a company long ago. My father was an engineering professor who honestly tried to be objective. He would ask me what I wanted to do, and so I’d say, ‘maybe I want to be a doctor.’ And he’d say, ‘engineering is excellent preparation for medical school.’ And then I’d say, ‘maybe I want to be a lawyer.’ And he’d say that engineering was the best preparation for law school. But, the real question for me was to identify the most difficult path. And so I went into engineering.”
Rhines became interested in electronics at around this time for the simple reason that it was “new and there was lots happening”. Simultaneously, the young engineer had two strategic approaches to building a career. First, he developed the idea that it would be easier for him to climb the corporate ladder in a technological environment, due to the management structures being less based on nepotism, and more concentrated on the potential for achievement of the individual.
Second, he became convinced - “and a lot of people thought I was crazy” - that the ideal preparation for the life of a CEO of a technology organisation was an initial degree in engineering, followed by an MBA. “So I decided that I’d do a joint MBA and Masters at Stanford University.” But the military changed all that: this was during the Vietnam War and because the army needed engineers more than business executives, Rhines was able to get a deferment on his draft if he pursued his PhD and abandoned his plans for an MBA. As it happened, Rhines was called up halfway through his PhD, but on leaving military service he resumed it and went ahead with his MBA as well.
Rhines describes how he rose through the ranks to become the CE-level manager he is today. He talks of having to be responsible for significant technical projects and seeing them through. There was the requirement to do research in the laboratory, publish papers and generally prove that a so-called technical person could excel to a degree where they could then manage.
He had already learned a lot of his management practice in the military, where “the Army really does train you to take ordinary people and bring the best out of them in order to achieve a mission. But it was the fact that I’d worked on technical projects with a high impact that created the chance for me to become a manager”.
If he could draw a conclusion from his career to date, it would be in three parts. First Rhines says, without a trace of irony, that his absolute formula for success is “to pick and nurture smarter people than yourself”. The advantage here is that you are always available for promotion, due to the fact that you’ve lined up someone to replace you, while they silently compensate for any weaknesses you might have. Second is to seek out problems that others perceive to be difficult or impossible: “You’ll gain neither recognition nor satisfaction in propagating an existing success, and so whatever you do is likely to be better than what was anticipated.” Third is to treat people in such a way that they are motivated to work with (or for) you in the future, “because these relationships will pay back over and over again”.
Having decided two decades ago that he was not a Texas Instruments lifer, my final question for Rhines is to consider whether he is a Mentor Graphics lifer. After all, he’s at a point where many people, after a long and successful career, might wish to spend a little more time playing golf or growing wine in California. “I don’t play much golf, and even if I did, I would find it to be something I would need to limit to occasional relaxation. That’s because I’d like to work for as long as I am able. Like Morris Chang [CEO of TMSC] they’ll have to take me out of here in my coffin, either from Mentor or my next job. I cannot imagine not being fully burdened with business issues, the excitement of growth and opportunity.” *
For more information about Mentor Graphics, visit www.mentor.com