T.J. Rodgers' Startup Strategy

The Cypress Semiconductor CEO's approach to new markets—funding outside companies, not internal groups—has made it No. 4 on our Tech Hot Growth list

by Catherine Holahan

T.J. Rodgers knows people often don't like what he has to say. The outspoken chief executive of Cypress Semiconductor (CY) has made enemies calling Social Security "a terrible scam" and describing government business subsidies as "corporate welfare." And he didn't win many friends by publicly arguing with a Catholic nun against diversifying Cypress' board with female and minority directors.

When he wants something, Rodgers doesn't stop talking until he gets it. In 2001 he wanted Cypress to invest in solar energy, though few people, least of all his board of directors, understood why.

At the time, the semiconductor industry was reeling from the collapse of the dot-com bubble. Rodgers, the man dubbed "The Bad Boy of Silicon Valley" in a 1991 BusinessWeek cover story, was presiding over red ink and layoffs. Yet he was demanding the board spend cash to buy a grad-school buddy's struggling solar energy company. "We were getting our ass kicked," recalls Rodgers. "And, oh, by the way, I want to invest in solar energy."

Fighting for Solar Power

Even if Cypress hadn't been losing money, the board's reticence would have been understandable. After all, Cypress was a semiconductor company. What did its employees know about alternative energy? More important, what did Rodgers know about it? In some respects, the solar energy business is exactly the sort he loathes: It is heavily subsidized by government funds, both in the U.S. and abroad, and it is a darling of the Green Party.

As a libertarian from Wisconsin, Rodgers' green leanings were in a very different direction: the Green Bay Packers and alma mater Dartmouth, "The Big Green." And he felt certain that solar technology developed by friend Richard Swanson's SunPower could make Cypress more green. But when Rodgers says "green," he's not referring to the environment; he's thinking of the currency.

"If somebody says, 'I'll give you $100 dollars for the change in your left pocket,' you don't need to do a calculation," says Rodgers, who gave $750,000 of his own money to keep SunPower afloat while he was trying to convince the Cypress board to buy it. After 15 months of arguing, Rodgers had convinced the board of directors to invest $9 million in the struggling company, which makes solar panels that produce more power than rival products.

A few months later, Cypress bought majority control of SunPower and invested in additional plants and equipment for the business, bringing its total investment to $168 million. In November, 2005, SunPower (SPWR) held an initial public offering of stock at $18 per share. These days it trades at nearly $125, for a market value of $10.4 billion. Cypress owns more than 53% of the shares, a stake worth $5.54 billion—more than Cypress' own market capitalization of $5.3 billion, suggesting some investors consider SunPower's shares overvalued.

Demand for Alternative Energy Is on the Rise

SunPower is a major reason Rodgers' 25-year-old company, largely a niche player in the mature semiconductor industry, ranks fourth in BusinessWeek.com's ranking of the top 75 high-growth tech companies (BusinessWeek.com, 12/3/07). SunPower accounted for about half of the $450 million in total revenue Cypress pulled in during the third quarter of 2007.

SunPower's success is driven by soaring demand for alternative energy, with tensions in the Middle East boosting oil prices and raising doubts about reliable crude supplies. The U.S. market for solar power, which totaled about $500 million in 2005, is expected to reach $1.3 billion by 2010, according to Jennifer Mapes, an industry analyst at Freedonia, an Ohio-based research firm. The solar energy market is so hot even Google (GOOG) may want in. On Nov. 28 the king of Web search and advertising announced the creation of a research group dedicated to developing cheaper alternative energy sources such as solar and wind power. Google says it may spend hundreds of millions of dollars on the project.

Also on Nov. 28, SunPower announced a deal that may help the U.S. market expand even faster: SunPower secured $190 million in financing from Morgan Stanley (MS) to install solar panels on corporate and public buildings and then sell the resulting electricity to the building owners. The initiative's aim is to accelerate adoption of solar power by enabling building owners to purchase solar energy without an up-front investment in equipment.