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Intel's heir charts the same course

Paul Otellini, the first non-engineer to take the helm of Intel, will be in charge of a company suddenly struggling to regain its footing after a series of stumbles.

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By Charles Cooper
CNET News.com

Sometime next spring, Paul Otellini will succeed Craig Barrett to become the fifth chief executive in Intel's history.

Winning the coveted job after a career at Intel that began in 1974 is undoubtedly a plum for . But the first non-engineer to take the helm will be in charge of an Intel suddenly struggling to regain its footing after a series of stumbles.

Earlier this summer, Intel said design problems would force a delay in the introduction of a chipset for Pentium M notebooks. That followed a delay in the launch of its latest Pentium M notebook processor, from January or February until May.

Intel also took longer than expected to ready its latest Pentium 4 chip, the Prescott. The chip technically shipped on time—it went out to PC makers before the company's stated goal, the end of 2003—but was not available in systems until February.

The company also blamed manufacturing glitches for the recall of bad controller hub chips, which affected the launch of the Intel Express 900-series of desktop chipsets.

All this contributed to the release of a from Barrett urging Intel employees to take an attitude check and do a better job of executing on plans.

But temporary product delays and production problems aside, Intel still dominates the chip business with more than an 82 percent share of the PC processor business. Otellini, who recently met with a group of reporters and editors from CNET News.com, talked about the upcoming transition and what he thinks will be some of the defining themes in technology.

Q: You would be the first non-engineer CEO in Intel's history. Will Intel under Paul Otellini look differently than it does now?
A: I hope it does not look any different. I am a product guy. Of my 30 years at Intel, I think I spent five or six years in finance, and the rest was in product development or sales and marketing. I like products; I get involved very deeply in the product decisions around here—probably more so than some of my engineers would like.

Where do you think your stamp will be—especially as Intel ?
It is way too premature to project the answer to that one. Who knows? One thing about Intel is that we have had a series of very seamless transitions, from Bob (Robert Noyce) to Gordon (Moore) to Andy (Grove) to Craig (Barrett), and you really do not notice an abrupt transition in any one of those things.

Then do you have an interim goal in the next transition?
I think our goal in the next transition is to manage this in a way so that Intel is still Intel, before and after. We will all bring our own perspectives, but we will also bring two decades-plus of history working together into this job. Every one of these guys has been around a long time in Intel.

You are an 80,000-person company now—or close to it. Do you think Intel still has the same entrepreneurial drive that it had five to 10 years ago?
If you would have asked that question in comparison to 30 years ago, I would have said "No" because the scope was a lot different. Five years ago is a drop in the bucket. We are much the same then as we are now...in terms of our focus on products.

We are today much more adept at handling and integrating new architectures and then marketing them. We were very good for some—for two decades—at bringing out the next best microprocessor and just doing that time and time again. The model that we are addressing now is a better use of our resources, one that actually gives us a better, sustainable competitive advantage.

What do you think you are going to face, in terms of challenges that has not had to face, as you expand beyond the traditional PC business?
The fundamental value proposition of bringing standards-based to their business unit is the same thing...it's the same value proposition we've brought to the computer industry for three decades.

In the consumer electronics space, I do not think it is much different. We show prototypes, and we talk about architectures. A year and a half ago, we called the Digital Home Working Group, which brought together all the key CE (consumer electronics) and computer and software content companies to say, "Okay, guys, two years from now, we need a common standard for interoperability." So the first thing you do—the first discussion you have—is: "How do we all work together?" And from there, you have a common dialogue and a common business model.

Is it a question, then, of using old tactics and strategy and simply applying a new vocabulary?
What I suggested early on was that we take a much more holistic view of product development, market development and demand creation today than we did five years ago as a company...It is a notion of what Moore's Law brings to you, in terms of innovation and integration. So, I do not think that there is a difference in this regime, per se.

Speaking about the digital world, Intel has talked about going beyond the PC, which is where you derive most of your revenue. Will taking on the Sonys and the Samsungs require a different mind-set from what you're accustomed to?
I do not look at this as taking them on. I look at this as creating categories of products for which they may be the two largest customers—or among the two largest customers. In many ways, they are the heart of where this business is going, and you will see Hewlett-Packard and Dell trying to move into the CE side so that they can take advantage of it.

I think it is a very interesting dynamic that is already showing signs of disrupting the traditional pace of the consumer electronics industry. The rate at which PC technologies have been incorporating CE devices is astounding. It drives their design cycles to be much more rapid and PC-like than they have in the past, when they lived with five- or six-year design cycles.

The Samsungs and the Dells are going to go at each other in the consumer market, but you are agnostic. That is, Intel will supply to Samsung just as soon as it will supply to Dell?
We will supply anybody. But I think I look at it a little bit differently. I think there is an emerging set of standards around the digital home that all of us as consumers will demand. You may not understand the nits and nats of the standards. But you are going to want the things to work together wirelessly, to be self-configuring, to be really simple out of the box so that you don't need a 17-year-old or a network manager in your house to manage this stuff.

That requires interoperability, and it also requires that all these companies work together, because no one consumer is willing to buy only one company's stuff. We are all going to want to be able to mix and match brands, as we build up new things in our homes, and that requires a degree of interoperability that Intel is particularly good at driving, in terms of standards.

What do you think of ? We know how successful it has helped make both Microsoft and Intel. That is changing. Microsoft has not succeeded as well as it could have, when venturing out of that comfort zone; nor has Intel.
I do not think anyone at Intel ever talked about the Wintel alliance. You never heard us use those words proactively. What we have talked about is what we do with Microsoft, what the partnership is and so forth.

From the numbers we have seen, Windows XP only has about 40 percent to 45 percent penetration. Many people are still on Windows 95 and 98, for that matter. What is going to be on the application software that would be enough incentive for the user to say, "Ah, there is a dual core there, so I should go make the switch"?
Well I think you need to ask Microsoft about the penetration rate, but certainly, all new machines are shipping with XP. With consumers, I think it makes sense because of the better user features.

In business, I think that is compelling enough in and of itself to ask corporations to change. I think that is it is something that addresses one of the biggest pains that all of us who have IT shops have to deal with—which is viruses. As I understand it, this will significantly reduce the most common approaches to virus propagation.

We have been adding architectural features and rolling them out. What going to dual core gives us is a better use of how to deliver power per watt...Going to 6, 7, 8, 9 gigahertz would have taken 200-watt processors and large die. So now, we can use that same die area at a lower frequency to get more net performance out of the machine.

Intel has expanded its operations overseas to the point where it derives more revenue from international than it does from domestic sales. But what does Intel have to do to succeed in the emerging markets of the third world?
There is no one recipe that works for everything. With the exception of places like Israel, where we were in there before there was a market, the pattern has traditionally been that you enter a market with a sales and marketing presence and create brand presence. Those kinds of things help create enthusiasm for PCs.

You can tap into local experience. Increasingly, it allows us to tailor products for local markets. In some countries of the world, the availability of talent and our cost are compelling arguments. There are different investments in different countries for different reasons, each of which was unique to the assets that the country happened to offer.

Are Intel's investment decisions overseas at all impacted by the level of cooperation or frustration with the governments in a particular region? For instance, you had a recent .
On the contrary. I think that our 12-year working relationship with the Chinese government and our willingness to help invest in its local industries and build some of Chinese companies up gave us the opportunity to get into a dialogue with China and change the current direction.

If we hadn't had that kind of presence, we wouldn't have had the ability to say, "Listen, here is really what the world standards are about, and here's why they are important not just to you as a country, but to you as an exporter of a product." We would not have gotten where we did. They would have simply said, "This is the rule."

The fact that the Chinese were willing to change, I think, was remarkable. It was testimony to the fact that we were able to get access and talk to people in an intelligent fashion.

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