Paul S. Otellini is Intel's fifth CEO in its 40-year history, and three of the other four -- Robert Noyce, Gordon Moore and Andrew Grove -- were among the most famous business leaders of the 20th century. Under their stewardship, Intel became the semiconductor industry's dominant player, and perhaps the most important American company of the 1980s. Now, after looking slow and confused for much of this decade, Intel, under Mr. Otellini's leadership, is again showing the competitive fire for which it was once famous. Even today, Intel remains the ultimate keeper of "Moore's Law" -- the trend of exponential improvement in silicon-chip performance. Since the 1958 invention of the integrated circuit, the number of transistors that can be packed onto a chip's surface has doubled approximately every two years. Mr. Moore was the first to observe this. That's a lot of history to carry on your shoulders -- "all those legends," as Mr. Otellini, 57, describes his predecessors as we sit in corporate headquarters in Santa Clara, Calif. No matter which way Mr. Otellini moves he's inevitably compared with Noyce (the charismatic leader), Mr. Moore (the technical genius) or his mentor Mr. Grove (the ultimate corporate fighter). Noyce may be gone. Messrs. Moore and Grove, though less involved with Intel these days, are still around to comment and advise on the Silicon Valley company -- and its CEO's -- every step.
At Intel, success is the only option. The record of Mr. Otellini's immediate predecessor, Craig Barrett, is forever diminished by a gutsy and expensive, but ultimately failed, initiative to drive Intel -- via acquisitions -- into the communications business. That Mr. Barrett also courageously, in the face of the dot-com crash, ramped up Intel's investment in new capacity -- and thus set the stage for Intel's current growth burst -- is all but forgotten.
What is remembered is that in May 2005, when Mr. Otellini -- then executive vice president -- stepped up to the chief executive's chair, Intel was in a funk like never before. The company was coming off a decade that included an ultimately inconclusive antitrust investigation by the Federal Trade Commission, and the madness of the Internet bubble and its collapse.
Intel's long-dominant line of microprocessors was under assault at the high end from Advanced Micro Devices (AMD). In the fast-growing world of tiny-but-powerful chips for cell phones and other devices, Samsung, the South Korean giant, was declaring that it intended to supplant Intel at No. 1. For the first time, Intel, that most confident of corporations, looked confused and depressed.
It fell to the new CEO to swing the ax: a total of nearly 20,000 employees lost to lay-offs, attrition and the sale of business units. Managers (more than 1,000 of them) took the hit first. "It was miserable," recalls Mr. Otellini, who had worked with most of these managers for decades. "There were a lot of nights when I didn't sleep. I remember saying that this was not what I'd planned for my first year on the job."
Mr. Otellini is very rare among Silicon Valley leaders for having spent his career -- 34 years -- at one company. In fact, outside of a job as a sales clerk at "a shlocky men's clothing store" while in college, Intel is the only place he's ever worked.
What's more, in a business community filled with recent arrivals, Mr. Otellini is the rare example of a Bay Area native: He attended St. Ignatius high school in San Francisco, then the University of San Francisco, and later earned an MBA from Berkeley. Literally days after earning his degree, Mr. Otellini joined Intel.
That was in July 1974, when the semiconductor industry was suffering the worst recession in its history. The Friday before his arrival, Intel's stock had lost a third of its value, and the young Mr. Otellini arrived at Intel's headquarters just minutes after the company had laid-off nearly 10% of its employees. "My desk was still warm from the guy who had just vacated it," he recalls. "It was ugly."
"At the same time, I was impressed that Intel was keeping its commitment to the college kids it had already made offers to. It would have been much simpler to just tell us not to show up." Instead, just a few days later, he found himself at a brown-bag lunch with Robert Noyce and Gordon Moore.
Mr. Otellini didn't forget that commitment to employees in September 2006, when it was his turn to sign off on a major lay-off. "There were people inside the company advocating that we do one swift chop of 20% of the employees . . . I was adamantly against that -- I thought it was brain-dead. My God, you owe your people more than that. . . .
"So we systematically measured the performance of every part of the company to determine what was world class and what wasn't. Then, as analytically as possible, we made the cuts . . . and saved $3 billion in overall spending." He learned this process from Mr. Grove: "Ask why, and ask it again five more times, until all of the artifice is stripped away and you end up with the intellectually honest answer."
The layoffs behind him, Mr. Otellini immediately -- and controversially -- reinvested some of those savings into research and development. "Gordon Moore always said that 'you can't save your way out of downturn,'" says Mr. Otellini. Many industry analysts didn't agree with this move, but Mr. Otellini knew what Intel had waiting in the wings. "I knew that we had some great products that we'd been working on for five years, and that they'd be ready within a year. I also knew that when we came out of this downturn, this would be a very different industry -- and I wanted to be ready for it."
"A CEO's main job, because you have access to all of the information, is to see the need to change before anyone else does," Mr. Otellini explains. "I knew what products we had coming out, and I knew the results of our efficiency efforts, so I was optimistic. But as Andy once told me: 'You won't believe how long it takes for the change you've started to work its way all of the way through the rank and file.'
"As a result, I was upbeat, but nobody else was yet. So I made it my job to communicate, communicate, communicate the positive message. I did open forums, I did Webcasts, I told the employees to send me any question via email and I'd answer them. I wasn't trying to sell them on the idea -- when half of your 80,000 employees are engineers, if you try to put sales into it you're dead. You have to convince them, through reasoning and logic, the accuracy of your claims."
The last two years have seen the roll out of those new products, as well as the establishment of two important new alliances. At the high end of its product line, Intel introduced a new generation of its multi-core Xeon processors -- just in time to watch longtime competitor AMD stumble. Even more important, in a crucial move, Intel consolidated its position in the "tiny" processor market with the low-power/high performance Atom family, targeted at everything from handheld computers to mobile devices to cell phones.
Atom has proven to be a huge success, not least because it brings the venerable x86 architecture, the world's most popular microprocessor design, to the new wireless world. Mr. Otellini notes that the next billion consumers will enter the Internet economy using devices that merge the capabilities of smart phones and small laptops.
In late 2005, Mr. Otellini managed to pull off something none of his predecessors had been able to accomplish: a strategic partnership with Apple. Though that partnership was, and remains, mostly about the use of Intel processors in Apple Macs, that has still been enough to profitably tie Intel to the hottest consumer electronics company on the planet. Mr. Otellini confesses that he dreams of seeing Apple adopt Atom for the iPhone or iPod.
A second and more recent partnership, announced last month, is between Intel and Dreamworks Animation to develop 'InTru' 3D films. This had the added pleasure of running off AMD, the previous Dreamworks partner. Intel has also recently announced other collaborations, notably with Yahoo, to bring the Internet to television. In addition, Mr. Otellini recently has begun talking up once again that half-century old dream of the electronics industry: speech recognition.
Mr. Otellini has good reason to be confident. Old competitors like AMD seem to have lost their way, while new ones, such as Samsung -- now that Intel has embarked on a massive expansion in ChinaAsia -- are looking a lot less threatening. Intel once again sets the pace for the semiconductor industry, with annual sales of $40 billion, a market value of $110 billion and more than 83,000 employees. The company is still expected to grow 10% this year. Even Wi-Max, Intel's broadband wireless standard, will finally be launched this month in Baltimore. and the rest of
Gordon Moore famously claimed that no one can see more than five years ahead in tech. Where does Mr. Otellini see Intel in five years? He smiles and offers up a series of benchmarks and their corresponding grades. For a 'B', Intel needs to continue to dominate the huge (300 million units a year) business of processors for computers, "driving computing as far as we can over that time frame: faster, better, more integrated and cheaper."
For an A-, Intel needs to reach the same dominance in cell phones and other mobile devices. That means becoming not only the processor of choice in the world of wireless devices -- a goal that Intel is now a long ways from achieving -- but also driving everything from graphics to speech recognition to wireless broadband.
How about an A? "When everybody in the world carries around with them a couple devices that carry the latest, 2013 versions of our microprocessors in them. It's in your car, in your television -- in your iPod." He adds, laughing, "and if you're my age then, in your pacemaker."
But there's still a long way to go, with many obstructions that could pop up along the way. One unpredictable variable is government regulation. "The problem is that there used to be one set of rules out there -- U.S. antitrust laws were the de facto rules of the world. Now with globalization, we have different sets of rules for different regions, such as the EU, written around entirely different philosophies. It would sure make things easier if we decided on a single set of rules once again -- whatever they are. Then we'd know how to behave and we could plan better for the future."
There is one goal Mr. Otellini is adamant Intel will reach during the next five years: the continuation of Moore's Law. "I guarantee you that Moore's Law will not end on my watch," he says with a shudder. "Nobody in tech wants to be the guy who goes down in history for killing Moore's Law -- and it sure won't be me."
After all, that would be the one thing for which his famous predecessors would never forgive him.
By: Guy Chazan
The Wall Street Journal; September 30, 2008
