In the first of a three-part series on right-sizing, Jamie Smyth Technology Reporter talks to the chief executive of Xilinx about managing HR during a downturn.
The opening of Xilinx's €52 million European headquarters in Dublin was a welcome boost for the Irish technology industry, which has had little reason to celebrate of late.
The bitter winds of a two-year recession in the telecoms, media and technology sector have seen spiralling job losses at a host of operations. Several components factories have closed down and recently even firms undertaking cutting edge research, such as Logica CMG, have shed workers.
Xilinx, a microchip design firm based in San Jose close to the heart of the global technology industry, has not followed the slash and burn tactics employed by many firms. Reluctant to hand out P45s to its highly skilled team of engineers, the firm is riding out the storm by cutting discretionary spending and introducing new schemes to cut costs.
"It is not just that we didn't do layoffs," says Mr Wim Roelandts, Xilinx chief executive, who flew into Dublin last week to formally open the firm's new European headquarters. "We also had a responsibility to our shareholders and we set out not to lose money in the downturn."
But with sales in the current quarter expected at $295 million (€2667 million), far below the $400 million generated at the height of the boom in late 2000, that is no easy task.
To lower costs, Xilinx introduced salary reductions for staff and management ranging from 3 per cent to 20 per cent. Mr Roelandts, the Belgian-born son of a shopkeeper, accepted a salary reduction at the top of this scale.
"For people getting higher salaries this is not as serious," says Mr Roelandts, whose philosophy is that employees in firms should behave like owners. Consequently, Xilinx has introduced salary-for-shares swaps to supplement its existing share ownership plan. It also set up sabbatical programmes that enable staff to go back to school or work at charities for a while on lower salaries.
"The sabbatical programmes have proved very popular in Dublin which has a young workforce," says Mr Roelandts, who came under heavy criticism from analysts for not cutting deep enough during the downturn.
"If all other firms are laying staff off and you don't, of course you stick out like a sore thumb," he says. "I ignored \ advice to cut jobs because research proves that firms that don't do layoffs perform better."
The difficulty of training and recruiting electrical engineers persuaded Mr Roelandts to avoid layoffs. Lower staff productivity in firms that experience large numbers of redundancies is also a factor. "You can't expect workers to be productive when they have the sword of damocles hanging over their heads," he says.
Xilinx's measures to cut costs without redundancies generated savings of 10 per cent from gross expenses, and helped the US firm avoid posting a loss for all but one quarter in 2002. It also helped Xilinx pull ahead of its rival in the semiconductor design sector, says Mr Roelandts.
Xilinx's 'fabless' strategy helped it avoid layoffs. Rather than tying up resources in manufacturing capacity, the company outsources the manufacture of its chipsets to specialist firms. This means it does not have to employ thousands of workers in the production process, who are much more susceptible to downturns.
Likewise, the type of semiconductors which Xilinx designs - field programmable gate arrays - are popular when demand is difficult to judge. Equipment firms can progam these chips to do specific tasks themselves rather than rely on manufacturer's specifications, giving them more flexibility over their inventories.
Xilinx has also re-engineered its supply chain in the downturn to bring more flexibility to the process of packaging the wafers upon which its chips are made.
By delaying the packaging of chips to the last moment, Xilinx has reduced its inventory lead times from between 150 to 180 days to between 100 to 120 days.
But Xilinx's ability to diversify has also helped it to grow market share. Consumer electronics now accounts for about 15 per cent of sales and the firm hopes to break into the automotive sector.
Designing microchips to power computing systems in cars is becoming big business in Europe, and Xilinx has decided to use its Dublin European headquarters as a base for this project.
"A group of Irish marketing engineers are looking at the technical competence required in this sector. Telematics and collision avoidance systems are two areas... Europe is ahead of the US in the automotive industry."
Despite Xilinx's ability to avoid layoffs until now, Mr Roelandts gives no guarantee on the future. "Overall the decline in the telecoms markets is finished but growth hasn't started yet, and we are bumping along the bottom."
He says there is little visibility in the sector, and a war against Iraq would have a very negative impact on the world economy.
Whether Xilinx paternalistic approach to staffing could survive another recession is a moot point. But its innovative strategy has already won it plaudits from Fortune magazine, which recently ranked it the fourth best company to work for in the US.
Xilinx plans to hire an extra 160 engineers in Dublin over the next few years bringing employment levels to about 500. Mr Roelandts's long-term view should serve the firm's Irish staff well.In the first of a three-part series on right-sizing, Jamie Smyth talks to the chief executive of Xilinx about managing HR during a downturn
