Cirrus Logic CEO Jason Rhode Talks Energy and Leadership

This is the third and final portion of a lightly edited transcript from the Fool's interview with Cirrus Logic (Nasdaq: CRUS  ) CEO Jason Rhode. To read part one, click here. To read part two, click here.

In the final part of our interview with Jason Rhode, we jump right into the company's ambitions in the "power factor control" (PFC) market. Power factor control components essentially reduce power waste. Cirrus' solution is notable in that it's the first digital PFC that can beat the analog version. It's a market that Cirrus Logic sees as having the potential to ramp to over $400 million a year, and extends past the company's focus on legacy seismic energy products and Cirrus' work in the smart metering industry.

Eric Bleeker:  Focusing back on energy, you had mentioned the power factor control market earlier. … It has grown a lot, but it is a pretty low content per unit opportunity. Could you describe what led you into this market and kind of what looked attractive with it?

Jason Rhode: You are absolutely right. PFC by itself is not typically an expensive component. Again, we think we can improve that a little bit simply because ours is a very digital focused solution, so versus literally everything else on the market today, which is an analog solution whereby actually, the algorithm is implemented with resisters and capacitors and a bunch of stuff around the chip. Ours is digital, all the algorithm is implemented in the component itself, so that helps. In addition too, that gives the customer a lot more flexibility, a lot more controllability, so that, to some degree, helps get the ASP [average selling price] up a little bit.

But, at the same time, we really viewed it as PFC is a toehold in a lot of different energy control areas; things that support a lot more content around them, so we felt like that was our beachhead in a lot of these energy control areas.

EB: Could you describe some of those?

JR: You could take it into really any kind of power supply that you want. What we found, for example, in things like servers, a server is going to have to have a, well, already has to have a power factor correction chip in it and the server people now are very focused on power monitoring, so they want to know exactly how much power is going on in every server, or even in every blade. Well, we sell power meter chips, and that happens to fit in quite nicely with a digital power factor correction because you can control the whole thing with the same micros, so there is an adjacency within a lot of those sockets, even for products we have already got.

But more to the point, the second stage in a lot of those sockets, there is a lot of advantage to connecting that to the same power factor correction chip.

Lighting, a lot of the lighting stuff is going to end up needing power factor correction, either because it is mandated or just because it makes the problem easier to solve. That is a few of them. A little laptop brick charger-kind of deals.

EB: One sort of final question, who would you say some of your biggest competitors are in these two marketplaces?

JR: It is an interesting kind of a mix. Probably the biggest; well, not probably, but for sure the biggest is Texas Instruments (NYSE: TXN  ) . It is an interesting thing competing with them because they are huge, right? It is a very different proposition for customers that are buying from us versus them. And for sure, there are plenty of accounts where TI has a huge advantage because they have got a giant sales force and they have got 20 different components that that company buys. At some accounts, that is a big advantage for them.

On other accounts, that is a big advantage for us because we are pretty nimble. We are a lot smaller, we are much more likely and willing and able to do custom products for folks on a pretty tight schedule. People know that they have got, or at least the perception that they have got more leverage on us because they are a bigger piece of our business or they would potentially be a more important customer to us.

Then really it is about focus. If you were the size TI is, you have to do everything reasonably well, and they certainly do; I am not knocking them at all. So you have to pick a very small number of things and do them exceptionally well, so we tend to target the customers that are really trying to differentiate on what we do. We don't want to be the checkbox audio, OK; it has got to have an output. We want to be a value-added component in the system.

So TI is the biggest. Somebody that is more like us, for example, on the audio side only is Wolfson, a Scottish company. They were a great company at one point; they have had a tough couple of years. They have got a new CEO who seems to be trying to spruce them up a little bit. On the energy side, we see Maxim Integrated Products (Nasdaq: MXIM  ) .

EB: Interesting. Who would you say, and this doesn't have to be in the same industry, but we are always curious whenever we talk to you, management, because our founders, the founders of The Motley Fool, are very management-focused investors and that has sort of spread down to all of us, but who would you say you admire the most, whether it be another company or another CEO?

JR: There are a lot of them. I don't know if this is a perfect answer in our worldview, but at the moment I have got to say ... the Zappos guy [Tony Hsieh].

EB: Oh, yeah.

JR: Because it is very consistent, his whole thing. It is very different in the sense that they sell shoes on the Internet and we make chips, so it is not the same. Our value that we have centered our whole centerpiece around is innovation whereas theirs is customer service, but his thing about integrating the culture of the company with what you do, and it just becomes this, there is less of a work and life separation, that you like where you work and that actually matters. There becomes this real positive feedback cycle with that, and that is real similar to what we have tried to do, and I think have been very successful at over the past couple of years.

The company, like you said, has been around for 25 years. Most of them were not positive and we have really made strides in the last three years. When we did that offsite, we set a goal to start getting on these "best places to work" lists. Not so much because we cared about getting on the list per se, but you get a lot of good data from participating in those things and we legitimately want it to be a place that people enjoy working. Not so much because we are nice, but just because we think that delivers better results over the long run.

So we set that out as a goal, and increasingly we are on those lists. We haven't necessarily won the big kahuna yet, but we have won a lot of placement on the best places to work in Texas, etc., and it shows. The comments that we get back from our employees; we do a leadership assessment survey once a year and the comments that we get back from our employees are really wonderful; the company feels like a family. I think that matters a lot.

EB: No, I absolutely agree. I think one of the things, and even on this call we ask some of the financial questions, we ask some of the questions from an investor's standpoint, but honestly, the "stuff" that really drives the business is what you guys have been doing internally and it is this culture that you are creating that will eventually, hopefully be reflected in all the things that we sort of have this ivory tower look at. So it is very encouraging, very interesting to hear your interest and your perspective there.

JR: Yeah, cool, well I appreciate that.

That's it for the Fool's interview with Jason Rhode. To read my original buy recommendation from our Rising Stars series on Cirrus Logic, click here. If you're interested in following my "Bits Portfolio" as I make more buy recommendations, subscribe to my recently launched Twitter feed.

Eric Bleeker owns shares of no companies listed above. The Fool owns shares of Cirrus Logic and Texas Instruments. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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