Farewell Mr. Intel

After seven years running the world’s largest chipmaker, Intel CEO Craig Barrett is set move upstairs. But as he tells Richard Agnew, his work is far from over.

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By  Richard Agnew Published  April 3, 2005

Farewell Mr. Intel|~|STAR-APPEAL-200.jpg|~|STAR APPEAL: Craig Barrett has the charisma to draw the crowds. |~|CRAIG Barrett is, by his own admission, being “kicked upstairs” in a matter of weeks, but the long-serving chief executive officer of Intel is not planning to hang up his boots anytime soon. After seven years at the helm and over three decades in all at the US chip-making giant, the 65-year-old is set to pass on the mantel and take over the firm’s chairmanship in May. But retirement is still firmly off the agenda for Barrett, as he plans to continue helping out with efforts the company has made to target countries where use of technology still remains low. “I’ll still stay very interested in a couple of areas,” says Barrett. “One is education and another will probably be the continued internationalisation of the company. We’ve done a lot of work in that area for the last five to eight years and I’d like to stay involved — working with Paul [Otellini, the CEO designate], but continuing to focus on our emerging markets such as the Middle East, Latin America, Eastern Europe, India and China,” he adds. Under Barrett’s guidance, Intel seems to have come out of one of the most difficult periods the IT sector has faced largely unscathed. The company retains its long held position as the world’s largest chipmaker; its microprocessors power eight out of 10 devices in the x86 market, which includes most computers in use today. Despite increasing competition and Barrett lambasting staff in an internal memo for slow product launches, the company also posted revenues of some US$34.2 billion last year. This figure beat the previous record it had set of US$33.7 billion in 2000, before the downturn, and its 2003 earnings by 13.5%. “We’ve stayed the number one semiconductor company throughout the deepest, longest downturn the industry has ever had, we’ve stayed profitable through all of that, [and] we’ve continued to grow our international presence,” Barrett adds, proudly. Intel is not alone in the IT sector in stressing the importance of as-yet untapped markets to continuing growth, but Barrett sees geographical expansion as being particularly critical to the company’s future. He claims that there are now more transistors in the world than grains of rice, but many countries have yet to grasp the potential its technology has to transform their economies. And as Intel aims for revenue growth of 15% per year, he points out that the company can’t rely solely on mature Western markets where IT usage is a lot higher. “Western Europe, Japan and the US are still our biggest markets, but they’re not growing nearly as fast as the emerging markets are,” Barrett says. “Emerging markets are effectively 40% of our business and growing more rapidly. Those countries have really not historically heavily invested in information technology, and are doing so today — and they are doing so from a government, business and personal perspective,” he adds. To keep this momentum going, Barrett took the opportunity to visit the Middle East last week to espouse the benefits technology could provide to the region, where it is estimated that only a third of people currently use computers. His tour included stops in Dubai, Abu Dhabi and Egypt, where he also urged leaders to continue investing in IT research. “I think it’s a message every country needs to heed, as the world moves more and more towards knowledge-based economies,” says Barrett. “The whole concept of new ideas, intellectual property and so on, are going to be the driving force for wealth creation. That comes out of R&D — countries that invest effectively in R&D [research and development] should reap the benefit. They should be more competitive,” he adds. Despite Barrett’s message, the Arab World is one emerging market that Intel itself has been slower to invest in than others. He says that the company’s strategy in a particular region usually progresses from setting up sales operations to heavier investments as markets mature, and typically ends up with the installation of R&D and manufacturing plants. Intel’s nearest manufacturing facility to the region at the moment is in Israel — a factory which opened six years ago and employs 2000 people. “There are no short-term plans to invest in manufacturing in the Arab States,” Barrett says, however. “Historically, if you look at the sequence of events that takes place in new geographical areas, the first step is sales and marketing and technical involvement with local original equipment manufacturers (OEMs). The second is engineering and consulting work. The third step is, quite often, work with education institutions. The next is usually a research centre and the next after that is usually a manufacturing facility. It’s only after some period of experience within a country do we start to put a major engineering centre in place,” he adds. But Barrett points out that Intel’s Middle Eastern operation is moving up that scale as IT adoption grows, and is now heavily involved in training programmes and initiatives with schools and universities to improve IT literacy. The company has already installed competency centres in the UAE and Lebanon, which train companies involved in specific industry sectors in the use of technology. Barrett’s tour to the region also saw him kick-start an initiative to train local teachers on how to use IT to brighten up lessons, as well as the launch of an Arabic-enabled internet portal, which schools can use to access online learning material. Indeed, the use of IT in education, he says, will be one of the pet areas he hopes to focus on when he becomes chairman. “Probably the most visible programme that we have [in the region] is the teacher training programme; teaching them to use technology in the classroom,” he says. “We also probably have over 300 separate involvements with universities around the world, where we either mentor researchers or fund the research. There’s no reason we can’t increase those interactions. Those involvements could be here, as well as they could be in the US, India, Latin America or anywhere else,” he adds. Barrett’s main regret from his time in charge is the difficulty Intel has experienced in transferring its overwhelming dominance of the PC market into the mobile phone sector. He admits that the firm made “technology missteps” in attempting this shift. But he also puts it down to the slow development of next generation mobile devices with increased computing power, which would have given new entrants an opening to take on the more established players, such as Texas Instruments and Qualcomm. “The area that I would have liked to have done better in is the cellular communications area,” Barrett says. “We do a good job in PDAs and handheld computing devices, [but] we haven’t done as good a job as we wanted to do in the cellular phone space. We initially went into the cell phone space probably with a misperception about how easy it would be to apply our technology to that space, and we also went in it to with the assumption that there were going to be some more rapid transitions in that space than actually occurred. The movement to 3G, for example, we thought was going to be very rapid and would have occurred in volume a few years ago. It didn’t occur nearly as rapidly as we would have anticipated,” he adds. Nevertheless, Barrett is confident that the wireless sector, alongside geographical expansion, will provide one of Intel’s major areas of growth. Having had success with its Centrino technology, which is embedded in laptops to allow users to connect to local Wi-Fi networks and access the web at high speeds, the company is now heavily involved in promoting the emerging WiMAX standard, which will allow these networks to be extended over a range of 50 kilometres. According to Barrett, Intel chips for WiMAX devices, codenamed Rosedale, will be launched in the second half of this year. He sees the technology as potentially disruptive, allowing operators to compete with landline infrastructure or cable networks to carry calls, as well as internet services and TV. He also points to an opportunity for service providers to use WiMAX in emerging markets to improve their telecoms infrastructure more cheaply. “For any emerging economy that doesn’t have a wired infrastructure, it may be the most cost-efficient way of putting a broadband infrastructure in place,” says Barrett. Another opportunity Barrett expects Intel to heavily focus on once he becomes chairman is its continuing push into the consumer electronics space. Here, it is looking to tap into digital convergence in the home by building its chips into devices such as TVs and fridges and allowing them to communicate with each other and access multimedia content. “All of the work that we do with the computer industry, the software industry, the consumer electronics industry ... all of that good stuff is basically designed to bring computers more and more into the consumer side and also to move that strong digital architecture in computers into the architecture of consumer electronics,” Barrett says. For Intel, that could mean going head to head with several new firms in a new sector, but Barrett says that he will be looking to make partnerships, as well as compete. “There are some big companies in that space, the Sonys, Samsungs and others, but I look at them as potential customers rather than as competitors,” says Barrett. “There are obviously companies that supply integrated circuits and such, but we’ll bring the strength of providing digital expertise to what was an analogue market before,” he adds. This shift towards digital convergence is just one of the seismic changes Barrett has seen during his time in charge at Intel. But his successor, Otellini’s main challenge, he says, will be simple. “The biggest challenge that we always have is growth,” he says. “It’s important to us to demonstrate to the world and to the financial community that we have continued prospects for substantial growth. We’ve said for the last several years that we have internal targets for growth of 15% or so. The last two years we’ve grown 13%-ish, so nearly at that 15% growth level. It’s important for Paul and the company to continue to show that growth and that growth potential,” he adds. There can be little doubt for now at least that the good times will continue. Barrett's successor is taking over a well-oiled operation that in the past seven years has turned itself into a world beater. The challenge for his successor lies in Intel's ability to find suitable partners, and then properly compete with rivals in the consumer electronics market. What anyone following in Barrett's footsteps will find much harder to replace is the charisma and enthusiasm of the current leader. In the US, he is regarded by many as the Richard Branson of the IT industry. Barrett is known for his many stunts, and willingness to appear on stage alongside the likes of Aerosmith frontman Steve Tyler, and actor Morgan Freeman. Whatever it has taken in the past to promote Intel, Barrett has been more than willing to do. And he has always succeeded. ||**||

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