Our strategies are designed to outlast the market cycles

Ross: 

The technical challenges you’re describing are enormous. But I’ve always understood that the analog-semiconductor market requires more design prowess and more creativity out of the engineers. Why do people come and work for Power Integrations?

Balu: 

My experience with the engineers is that you have to give them an environment that allows them to thrive in terms of pushing boundaries and trying things without being faulted for doing something wrong or hitting a dead end. You also have to make that environment apolitical, because as soon as you bring politics into it, the engineers just hate it. Also, there needs to be complete communication, with no barriers, across all groups. There can’t be secrets in the company. We have talk about what our shared goal is.

Everybody in the company has exactly the same goals, which is very unique to our company. If you give a goal that’s different for a design group versus a test group, they will all blame each other for missing the deadline. If they all have the same goals, they help each other. If one of them is struggling, the others will ask what they can do to help. It creates a very unifying force where everybody works together for the success of the company. I even have the same goals as everyone else, and they understand that. And we have very few goals, which are very specific. Everyone does their part. When you have an environment with no politics and no limitations, we couldn’t get rid of the engineers even if we wanted to. Most of them like the environment more than money.

I mean, I can’t tell you how many people have stayed with us until they retired. We have a high average age, and probably the first eight years are the most vulnerable, because the newer employees don’t know us very well and don’t know what else is out there. They often think maybe there is another company that is better, because they just come from school. They haven’t tried any other company. Sometimes people leave, and if they do, we always tell them they are welcome to come back, and lot of them do come back. Some come back after two years, some of them after five years. I always ask them why they came back. They say, “I did all of these different things, but I realized this is the company I want to work for.”

Ross: 

How have you been able to keep your company focused on the long term in a market that is not known for long-term thinking? 

Balu:

The only long-term barrier to competition is innovation. You have to constantly innovate. Number two, you have to protect your innovation. You have to protect your IP. In the early days of the company, we decided to not put our IP in China, Taiwan, or Korea, because we wanted to make sure we weren’t going to lose it over time. So, we started with Japan with our wafers.

Our assembly is done in Malaysia, Taiwan, Thailand, and the Philippines, because we also have IP in our packaging, which we have to protect as well. We really isolate that. The manufacturers only know what they need to know in order to make a part. Even at our wafer foundries, we own the recipe. They just make the wafers for us. All of that gives us a unique advantage, even within the company. Our employees don’t have access to information unless they need it to do their job. So, we have been very successful in protecting our IP.

Ross: 

As a company that was very dependent on one particular technology or product in your early days, how did you build adaptability into the organization over time so that you could start to diversify? Certainly, with one very successful product that’s monetized very well, you have plenty of competitors and there’s plenty of change afoot in the end-markets you’re in. How do you get past those hurdles?

Balu:

Well, the first question you ask is how big the market is. Obviously, if the market is too small, you have to diversify out of the market. But I’m always surprised every time we look at the market, because it’s bigger than we think. The reason is that power is everywhere. Especially with this carbon net-zero initiative, it’s going to become a humongous market. It’s estimated by Goldman Sachs that about $54 billion will be spent between now and 2050 on aligning with the Paris Accord requirements. 70% of that will be spent in areas that directly benefit us. You see, the U.S. has already committed a lot of money, and the market is growing. The question is, “How do we get the most of the profit to our company?” We do that by having products that span the entire spectrum of power levels and applications.

The good news about power is that power is power. It doesn’t matter if it powers a solar invertor, a motor driver on a locomotive, an automotive power supply, or a power converter on any of your appliances in the house. The power supply is still the power supply. The only differentiation is power. Some things take very little power—your cell phones might take just a few watts—but if you’re in a high-voltage DC transmission system, you’re talking about a couple of gigawatts, maybe more.

So, our goal, which we have been pursuing for some time now, is to address it all. We go from a few watts to gigawatts. It’s just a question of the products. The more products you introduce, the more market there is. We have already identified products that will take us to about $8 billion in SAM by May 2027 or 2028. And in the last six months, we’ve already thought about products that will push us lot further from there.

Our board asks all the time, “Do you have to acquire a company or maybe go into a different conversion?” But when you look at it, we have so much intellectual property. We understand high voltage conversion better than anybody else in the world. Why would we not stay in this area and capitalize our intellectual property, our knowledge, and our know-how? Why would we compete with people doing DC/DC conversion? Why wouldn’t we make our own way and grow the company where there is no competition? That’s the whole thought process. You focus, you keep innovating, and you generate more products that continue growing the SAM. I don’t even see a limit to growing the SAM. It’s just a question of us coming up with more products.

Ross: 

How do you incentivize people to take chances and innovate? As companies get larger and larger and more successful, they tend to become more risk averse, and that’s the exact opposite of what they need to be doing. How do you make sure that people continue to stay aggressive regarding innovation and learn from their failures?

Balu: 

It’s important for me to make sure the engineers take risks. I always tell them that if they don’t take risks, they’re not going to be any better than our competitor. We have to take risks. It’s okay if we fail, because we will learn from it and move on. But not taking risks is not an option, because then we will become mediocre over time.”

As a company grows, you really have to instill that mindset into every engineer in the company. Luckily, we have a lot of people who have grown into it and believe in it 100%. So even if I didn’t personally talk with an engineer, I’m very sure they understand our business model of needing to push the boundaries.

Now, I don’t want to take risks in operations or finance. They have to do their jobs perfectly and not take risks anywhere. But everywhere else, we really, really need to take risks. Sometimes, when I suggest some ideas, the engineers think I’m totally nuts. But I say, “Okay, try it. Who knows? It may work and then you’ll know it works.” It works sometimes, and sometimes it doesn’t work, which is OK.