Intel Corp. already reaches hundreds of millions of people with its chips. But Paul Otellini has his eye on billions.
The Silicon Valley giant's chief executive is no
longer content to just supply the electronic brains for conventional
computers. He also wants to push Intel microprocessors into people's
pockets, exploiting a shift to add Internet capability to cellphones
and other gadgets.
That won't be easy. Intel has failed before in
handsets, a market now dominated by chip makers that license technology
from ARM Holdings PLC. Instead, the company is promoting the idea of
"mobile Internet devices," or MIDs -- between the size of a cellphone
and a notebook computer -- as well as new-wave laptops called Netbooks,
which cost $300 or less.
Such portables need low-power chips to preserve
battery life. Low-priced chips are another priority. Intel, whose new
chips typically start above $100, must be able to make money on
products like its new Atom line that start at $20 or so.
Mr. Otellini, who became Intel's fifth CEO in May 2005, has already moved to cut operating costs to meet stiff competition from Advanced Micro Devices
Inc. in its existing markets and so that it can move into new ones. He
led a two-year restructuring that reduced Intel's headcount from
103,300 to 84,600 by the end of the first quarter, and he got engineers
to churn out new chips much more quickly.
The 57-year-old San Francisco native sat down last
week to discuss Intel's new thrust and other topics, including the
economy. Excerpts:
WSJ: You recently estimated 20% of the
world's population is connected to the Internet, suggesting that there
is opportunity for Intel there. How do you exploit that?
Mr. Otellini: At the current rate there will be enough cellphones sold that every person on Earth will have one inside of 10 years.
Now the Italians have three and some people have none,
so it's an average. But the idea that you have one per person of
anything in this world has never happened. There's not even one
television per person.
The handset could be the first thing. And then it's
not a big leap from that to say that all of these things at some point
in time will be Internet-enabled.
WSJ: Chips for cellphones have not been Intel's strong suit.
Mr. Otellini: We were aiming at the original
smart-phone market, as it evolved in a 10-year-ago timeframe. Our view
now is entirely different. It's that these are becoming just small
Internet computers that happen to do voice.
I think the iPhone's a good example of that. To me
that's the paradigm that allows us to play, because we're good at
small, we're good at integration, we're good at high performance. The
Internet all runs on Intel architecture.
It plays to the new paradigm that we put into the
product line with these low-cost Atom chips, which is to use the most
advanced technology we have to build the smallest, most cost-effective
chips we can -- as opposed to just building the biggest, fastest
microprocessor for laptops or desktops or servers.
WSJ: How do these new mobile Internet devices, or MIDs, compare with cellphones?
Mr. Otellini: In time they'll be
indistinguishable. I think all phones will ultimately access the
Internet in some fashion. The mobile Internet devices are a way to
distinguish the category we're talking about from the smart phones --
or BlackBerries -- which have very rudimentary Internet capability
today -- and say a notebook computer, which has full Internet
capability.
WSJ: Do you expect to get your chips into new iPhones and such?
Mr. Otellini: All the major handset manufacturers have a family of products, and they're all talking to us.
In this mobile Internet device category, there are
three classes of broad-based customers that are coming to us. The
computer manufacturers, which all look at this as an expansion
opportunity or maybe as a defense for the notebook category. The
handset manufacturers also are an obvious class. And then in many cases
the carriers, which would like to have their own private-label device.
WSJ: Just how big do you think markets like MIDs and Netbooks can be?
Mr. Otellini: I think that these are [chip]
businesses that will reach around $10 billion each. Now the issue is
how much of that can we get? I said that we're not going after all 1.3
billion cellphones -- yet. But we're aiming at the top 10% or 20% to
start with.
WSJ: Will you just grow organically in these new fields or might you buy some existing player?
Mr. Otellini: We're open to it. But so far the
acquisitions we've done in the last few years have been rather small
and they've been done to fill strategic holes. These are all $25
million-to-$300 million kinds of acquisitions, and it's easy to bring
them into the company and kind of leave them alone and just let their
technology run.
There are very few large technology acquisitions that have been successful. And so we're very cautious about that.
WSJ: Talk about some of the internal changes you have made to lower your costs.
Mr. Otellini: Well, there were two broad
directions. One had to do with the product that we're designing that
was aimed at these new markets and is aimed at a much lower cost
structure than we've ever had before.
On the other side, [in the restructuring] we used
external benchmarks -- best-of-class benchmarks -- for every element of
the operation and then weighed that against what we were doing.
When you added that all up, you got into the cost
structure that we have today, which I think is really quite good. We
said we'll be able to grow operating income faster than revenue in '07,
'08 and '09.
WSJ: Were there surprises in benchmarking the company against others?
Mr. Otellini: Well, the cultural part of it is
the hard part. Parts of the organization that had considered themselves
best of class, when they're confronted with the reality of the data
it's, "Oh, my God."
Our factory network, I have to say, has been
exemplary. They were always known for the best transistors in the
world, and now I think they're driving to have the best operating
factories in the world in terms of their factory throughput times,
their costs, those kinds of things.
It was legendary that our factory throughput times were close to 90 days for many, many years. We've cut that in half.
WSJ: In the first quarter you said your core business was operating superbly. Have you seen no sign of a bad economy at all?
Mr. Otellini: No, we've seen no sign -- or if
it is [there], it doesn't move the needle. The markets are all quite
good. Our strongest is North America, which is sort of counter the
prevailing wisdom.
WSJ: Because of chips for servers?
Mr. Otellini: Servers were driving it. But
there's this overriding trend in the mature markets, like with Japan,
the U.S. and Western Europe, of a shift to notebooks, which is a good
demand driver, as people want to have portability.
As the new generation of kids grows up, the notebook
is your school device. My daughter's on her third because she keeps
dropping the damn things, which is good for Apple.
And secondly in enterprise, what we saw in the
downturn of the '90s was that people turned to [information technology]
as a means of driving productivity into their business. Even in the
places probably hit most by the shock of the financial-services
meltdown, which are the banks themselves, we're seeing very robust
demand for back-end infrastructure, for upgrading their servers.
WSJ: You sounded more cautious about the economy following the December quarter than after the March quarter.
Mr. Otellini: Well, in January, you had all this [talk] that every bank in the world was imploding and no one knew where this was going.
But we've had almost four months worth of more data,
and you start seeing clearly through this. And the bank thing seems to
have at least stopped getting worse. We've seen the bottom of some of
these things, I hope.
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