Chief Executive Craig R. Barrett gulps down an orange soda.
After folding his 6-foot, 2-inch frame into a chair in a cramped conference room, it's clear he is uncomfortable with more than the tight quarters. The topic of discussion is his legacy--or what it will be. Halfway through his tenure as Intel's fourth CEO, the 62-year-old Barrett has three more years until he hits mandatory retirement age. Emblazoned on the awards, plaques, and framed articles crowding the walls, the accomplishments of Barrett's predecessors are daunting reminders of the short time he has left to satisfy his own ambitious goal of reinventing Intel. Here, more than anywhere else, the word "legacy" smothers Barrett. The mementoes around the room mark the legendary work of Chairman Andrew S. Grove, the Midas of microprocessors who, practically by force of will and a vision of the rapid growth of the personal computer, shaped Intel into one of the world's most powerful technology companies. Grove replaced Gordon E. Moore, the technical genius who set in motion what became codified as Moore's Law: that processor performance will double every 18 months, getting cheaper along the way. Before Moore came Robert N. Noyce, an Intel founder who co-invented the integrated circuit, paving the way for countless technological advances that have formed the bedrock of the computer industry. And Barrett's legacy? "My legacy is not to be the trivia question `Who was the fourth CEO at Intel?"' he says. "I hope not to be `I don't know, who was it?"' There's no doubt Barrett is having a hard time earning his place on the wall. After launching a bold strategy three years ago to move Intel beyond PCs and into such markets as communications, information appliances, and Internet services, the chipmaker is in its worst shape in more than 15 years. Oh sure, there isn't a tech exec on the planet who isn't having a crummy year because of a souring economy and the threat of war in the wake of the terrorist attacks. But Intel's problems run deeper than these events. For the past three years, Intel has seesawed between product shortages and product delays in its core computer-chip business. Piled on top of that have been embarrassing bugs, recalls, and overpriced processors that opened the door for rivals. By yearend, analysts expect Intel's share of the PC chip market to drop to 78%--nine percentage points below what it had when Barrett took over. Barrett's invasion into new markets has been even more dismal. So far, some $4 billion of Intel's more than $10 billion in new investments have produced little. This year, Intel stopped making network servers and routers after some of its biggest chip customers, including Dell Computer Corp. (DELL ) and Cisco Systems Inc. (CSCO ), slapped Barrett's hands for competing against them. In February, Barrett shut down a service for broadcasting shareholder meetings and training sessions over the Web. He shuttered iCat, an ecommerce and hosting service for small and midsize businesses. And he has retreated so far in the information-appliance business that Intel now markets its Web-surfing devices only in Spain. "Certainly, Craig's vision looked a lot more attractive a year and a half, two years ago," sighs board member David B. Yoffie, a professor at Harvard Business School.EARNINGS DROP. What went wrong? Critics say Barrett has been trying to move Intel into too many new markets, fracturing the company's focus on its core business. To execute on so many fronts, he has decentralized the organization and delegated a lot of decision-making. But getting a workable structure in place has
customers. he remains a force at Intel. In a Sept. people moving around a lot are not sure where they are going." Now. he is hinting at more job cuts.15 billion. and you're going to have to prove to me that they're crawling on all fours before I replace them. the CEO pointed out that Intel's head count is 20." That's raising questions about Barrett's leadership. So far this year. from $33. when you want to figure out how to beat the bad guy. No one is calling for him to step down. Adds G.. you don't call Robin. Intel's revenue is expected to decline 52%. analysts. estimates Merrill Lynch & Co.been a challenge. who left the company in 1996: "They're dabbling in everything and overwhelming nothing. Even in the core microprocessor group. 26 speech to employees. As chairman. while net income is expected to rebound 147%. to $1. "But everyone knows. nor on his shareholders. the entire semiconductor industry is in its worst slump in a decade.000 employees higher than it was two years ago. too." says one longtime customer. In the week following the September 11 attack. to $6. Barrett made his growth predictions before September 11. and partners say Grove should return as Intel's big strategic thinker. "Typically." says one former top executive. Intel is bracing for its worst financial results since it fled the memory-chip business in 1985. even though revenues are the same. In the old days. Says a top executive at a major PC maker: "I have never seen them at a weaker moment in the history of Intel. and what he has to say about buying new PCs under current economic conditions: "I will only be looking to replace PCs that are really crawling. bringing the workforce to 80. amid fears that shaken consumer confidence will hurt PC sales. "They complemented each other. UBS Warburg analyst Don Young says retail PC sales tanked 50% year-overyear at a time when most were expecting a pickup in demand.5 billion in 2000 to $773 million this year. Fanzilli Jr.5 billion this year--the chipmaker's first revenue drop since the 1985-86 tech recession. It's now unlikely Barrett will reach his goal of 20% revenue growth in the overall business next year. Chief Information Officer of Credit Suisse First Boston. save the fact it will be Intel's third-worst showing since 1986.000.000 jobs through attrition. according to researcher IC Insights. but a chorus of former executives.. the stock is around $20.7 billion in 2000 to $25. a former general manager of Intel's Desktop Products group.8 billion. For years. and even though he has not revised his goals. And it's likely to get worse. shuffling execs like cards in a deck." Yet Grove's booming voice is heard less and less frequently at company headquarters. But Intel will take a bigger hit. Before the terrorist attack. Consider Frank J. but he says his role is mostly as an observer when it comes to
. Barrett has restructured the business groups at least three times in as many years. Intel's stock was hovering at $26--more than 60% off its 52-week high. because it has failed so far to wean itself from dependence on a slowing PC business. For fiscal 2002. Carl Everett Jr. Grove and Barrett had been the chip industry's dynamic duo-Grove was the visionary and Barrett was the nuts-and-bolts operations chief.9 billion. and Craig was Robin. suffering from overcapacity and weak demand that will cause global chip sales to tumble 34% this year. Sure. 1. a startling 80% of the unit's staff were given new roles in a March shakeup. And the news from corporate America isn't any better. Next year's profit growth sounds good." On Oct. Merrill Lynch cut its fourth-quarter revenue estimate for Intel by 2%. The message wasn't lost on his audience. plummeting from $10. Merrill Lynch figures Intel's revenues will rise only 13%. Profits are falling off a cliff. Andy was like Batman. to $28. he has cut 5. Today.
Web-surfing devices. hopes to throw a monkey wrench into that plan. "You can't do this without sometimes hitting a bump in the road. With a temper at times as prickly as the cactus towering over his 9-by-9 cubicle." says Gates. Barrett tried to build a services business. Intel has retreated from most of the Intel-branded product offerings to rely on what Intel knows best--making chips. At the same time. he maintains." Indeed. Microsoft Corp. with Intel running e-commerce operations for others or dishing up business software to corporate customers over the Net. The chip. Intel counterpunched. Barrett says. It slashed prices on its Pentium 4 chips by 84%. That may not be enough. The downturn. however. is giving Intel time to hone its next-generation products in all the markets he has targeted. and routers to guide data over networks. he doesn't depend on it. especially when Intel couldn't make enough processors to meet sizzling demand during the Internet heyday. he says. The scrappy upstart. Barrett says Intel is positioning itself to come out of the downturn in better shape than rivals both old and new." he says curtly. "If he was equally as cautious. locked in a bitter battle with Intel. Three years ago. who also steered his giant software company into new turf while building his core Windows business. bugs.5 billion. Still." Barrett says he's not backing off those bets. agrees. has made major inroads since 1999. finally put a dent in Intel's market share. "It's not that he doesn't take advice." Grove says. we would be destined to remain a niche player. which was faster than Intel's Pentium III. His original vision not only called for making chips for networking gear." The product shortages. methodical planner. "Guilty as charged. Grove notes that he sought the advice of Gordon Moore during his early years as boss far more frequently than Barrett seeks him out. when it introduced its Athlon processor.""NOT GUILTY. Always a cautious. and Internet services. flawless execution in Intel's core microprocessor business is essential to overcome weak results in the new businesses and the plunge in the economy. Gates III. "But Intel is making a lot of smart bets on the future. (MSFT ) Chairman William H. Now more than ever. a ploy Grove used against cash-strapped microprocessor rivals to widen his lead in the mid-1980s. Rival Advanced Micro Devices (AMD ). Still. were "side effects" of pushing forward into many markets at a breakneck pace. This year." he says. With a $10 billion cash reserve and a seasoned team. he vowed to branch out into communications. The full scope of his vision has been far from realized. info appliances. "Not guilty as charged that we can't do more than one thing at a time. Barrett isn't the least chastened by Intel's flagging performance or criticism of his many-pronged strategy. he argues. Barrett says his strategy has not created a company without focus." Grove says. are largely the result of the economic downturn. he's turning that to his advantage by plowing gobs of money into research and manufacturing advances--$11. after nearly two decades. cell phones. but he defends the current CEO. Grove says he has been uncomfortable with Barrett's bold actions. Intel's problems. we had product screwups. AMD. his beyond-the-PC plans translate into producing tiny slivers of silicon to go into wireless and other communications products. Now. That's classic Intel. Barrett "marches to his own drummer. and recalls. a staggering 45% of revenues--at a time when rivals can ill afford such lavish spending. "We've got the technology.decision-making.NO SWEAT. and handheld computers but also for churning out Intel hardware--network servers. was quickly snapped up by PC makers. dragging AMD into a
. we've got the strategy.
"Consumers want to know what's in it for them. from $25. Barrett formed a new wireless unit in December. analysts say Intel's new Itanium server processors will take at least five years to gain traction. And the new businesses won't be much help any time soon. Barrett combined the manufacturing and development groups working on its core processors into the Architecture Group. Intel has released a speedy.4 billion last year from $3. considering Intel has staked so much on Itanium--a joint project with Hewlett-Packard Co. That's painful news for Barrett. the PC market isn't traveling at the same speed. "It's not pretty out there now. The only problem is. Indeed." he crows. with losses doubling nearly every year since 1998. not just `This is a bigger number. Intel has been getting that message since January. First. sales of Intel-based servers will decline nearly 10%. for the first time. In three years. such as DSP Communications Inc. Joslin revised his 2002 projections downward from 9% growth to a 1% decline. And the percentage of U. "Our Pentium processors are coming out ahead of schedule.S.9 billion a year earlier. 2-gigahertz Pentium 4 chip that outguns AMD's top processor.3 billion a year ago." he says.savage price war. Intel's new businesses--everything from Web hosting to processors for phones--have reaped zilch in profits. a leading supplier of chipsets and software for digital cellular communications..3 years in 1999. and now amount to nearly one-fifth of Intel's total. homes with PCs has been stalled at 58% for the past two years. Increasingly. Intel's networking and
. when ever more powerful PCs were a must-have. to $6. compared with a modest 3% decline in the competing Unix server market. betting that those deals would help such units as the Communications Group and the Wireless Communications & Computing Group grow 50% annually. few expect buyers will return to their habits of the past. Selling for up to 40 times the price of a PC chip. from 3. PC sales are expected to decline."' says Larry Mondry. This year. (HWP ) that took seven years and $2 billion yet came to market two years late. Barrett shouldn't expect help from his scramble into powerful. Customers will need to test each new chip and rewrite software to take advantage of processing in massive 64-bit chunks instead of the more common 32 bits. as its chips sped to lofty new heights but sales slumped. After the terrorist attacks. customers are more dazzled by the speed of their Internet connections than by the speed of their PCs. Even when the economy crawls back. Barrett has pumped more than $10 billion into 34 acquisitions to bolster efforts in new markets. which are used in cellular phones to hold data stored in memory when a device is turned off. AMD is expected to strike back by mid-October with faster Athlon chips. It hasn't helped Intel's cause that Barrett has been shuffling management and reorganizing business units nearly as often as the company trots out new processors. A year later. But Barrett isn't sweating it. Our chipsets are coming out ahead of schedule. This year. missing the tech buying boom. Revenue did rise sharply. But that's mostly thanks to Intel's flash-memory chips. according to researcher Gartner Inc. combining Intel's flash-memory business and new acquisitions. says IDC analyst Steve Joslin. Our whole road map is accelerating. This year. high-margin chips for servers either. the average life span of a corporate PC is expected to rise to four years by 2004. 1999. chief operating officer of retailer CompUSA. And in the past month. so it's better. to $23 billion. Even including the profitable flash-memory operation.
"To be candid. In 1998. When Barrett moved into the corner office. custom-made equipment to move parts through the manufacturing process. Intel is in the process of converting its plants to bring down costs of making chips as much as 50%. introducing the latest production technologies to help slash the costs of making chips and chipsets. or 29% of expected annual revenues. which then refused to support Intel.18 microns to . Indeed. from about
.5 billion. Too bad Intel has been anything but nimble. which are about the size of a salad plate. Take Intel's much-hyped broadband effort. into capital development. Communications Group. in preparation for choosing his eventual successor. and former execs say many of Intel's execution problems have been the result of putting chip experts in charge of new businesses. Copper interconnects boost performance by lowering heat conductivity. and Michael Splinter. about the size of a dinner plate. have 240% more room to produce chips than the current 8-inch ones." says Duane E. president of HP's computing-systems group. but some say Intel's take-no-prisoners culture remains unchanged.BROADBAND BLUES. 12-inch wafers. and operations. Nonsense. CIBC World Markets semiconductor analyst Quinn Bolton estimates that will push the manufacturing costs of a Pentium 4 desktop chip down to just under $39. He is pumping $7. director of emerging markets for chip researcher Semico Research Corp." says Paul Otellini. Zitzner. The reorganizations were designed to make Intel more fleet-footed and to avoid duplication of efforts in various units. and the architecture unit was revamped for a second time in two years. "I haven't observed any difference in the way they do business. says Barrett. Barrett explains that in the past three years he has moved four executive vice-presidents into new positions to give them experience in sales. Intel quietly admitted it has no plans to ship the chip. Intel workers in sterile rooms wearing bunny suits soon could be a thing of the past. Sales & Marketing Group. and the future of that business is now up in the air. "They keep putting chipheads in positions they know nothing about. author of The Innovator's Dilemma. Barrett and Grove say the moves were necessary to clean out organizational cobwebs and to reflect the realities of a more segmented marketplace. New. "We reset the whole thing. Barrett also says the reorganizations were key to pushing decision-making down into the executive ranks and making Intel nimble. to encourage the troops to tear down the old ways. Christensen. Intel has been Intel. Sean Maloney. He insists that Intel's managers are more than capable of tackling new challenges. says Bob Merritt." Barrett's answer is to turn up the heat on what he knows best: manufacturing. Barrett has worked on improving customer relations. such as the networking and communications operations each pitching similar products to customers with no coordination. analysts. low-cost. Customers. he vowed to reinvent not only Intel's business but also its culture.communications businesses were merged into a new unit. Those on the up-and-comer list: Otellini. But Barrett has yet to purge Intel of a culture that is used to competing in markets where it is the only choice. digital subscriber line (DSL) chip without phone-company input. senior vice-president for the Architecture Group.13 microns cuts the size of the same chip in half. That frustrated phone companies. In March. as virtually automated plants use sophisticated. and shrinking the size of circuitry from . He has hurriedly ramped up a makeover of Intel's manufacturing plants." grumbles one former employee. He brought in consultants such as Harvard Business School professor Clayton M. marketing. Intel began pushing a new standard for a speedy.
Tahernia says there's a huge learning curve in figuring out pricing and what customers want. (TXN ) and Motorola Inc. "I think they realize their best strategy is to out-invest and out-technology competitors. He's spending another $4 billion to research promising new technologies. an unproven wireless player. A key test of whether Intel will become a formidable player in the wireless industry outside of flash-memory chips comes early next year when it begins shipping its new. says Gartner Group analyst Stanley Bruederle. The chipmaker. (MOT ) also are moving forward with next-generation offerings in the battle for the digital signal processor market. Deep pockets and manufacturing prowess.$60 now." sniffs Omid Tahernia. however. high-performance digital and analog chips to make a single piece of silicon. Intel plans to be a one-stop shop for the guts of cellular phones and handhelds. expected in 2005. one of the key ingredients in cell phones. such as extreme ultraviolet light to draw features for increasingly complex chips that will run at 10 gigahertz and beyond. where it hopes to make inroads with its "wireless Internet on a chip" strategy. Intel hopes to pull miles ahead of competitors. Intel unveiled a new flash-memory chip that it claims will retrieve data four times faster than standard cell-phone memory. however. Intel says Siemens (SI ) and Mitsubishi have signed on. may not be enough to help Intel dominate the communications. "We have over 20 years of wireless and cellular knowledge. Rollins. making the technical differences in its products much more pronounced. may have a tough time persuading giants Nokia (NOK ) and Ericsson (ERICY ) to abandon trusted suppliers for Intel. Industry leaders Texas Instruments Inc. Intel also is getting ready to bring out new technology called hyperthreading that could be a significant boost to the power of its chips by allowing one processor to perform two heavy computing tasks simultaneously--as if there were two chips in the machine instead of just one. Barrett isn't finished doling out the dough for manufacturing advances. the interloper. has a lot to learn in a short time. That technology will be available for servers and workstations next year and in PCs by 2003. The chipmaker's best growth prospect outside of servers is in its wireless group. 26. boosting sales. low-power XScale processor. Intel is betting it can use the same technology and factories to produce chips and chipsets for each market it is pursuing. And on Sept. wireless. and Web-site hosting markets.
. Its edge: offering a chip that is two to five times more powerful than those of its rivals. By combining its flash memory with low-power. Rivals aren't waiting for Intel to gain a toehold. And they say that Intel." says Dell Computer President Kevin B. Intel hopes to convince handheld computer makers that the chip can handle large video and audio files and can be used for always-on Internet connections. general manager of Motorola's Wireless & Mobile Systems Div.
26. And the outlook for Intel's Web-hosting venture is even more bleak." says Lehman Brothers analyst Dan Niles. and Commerce One (CMRC ). Barrett says he is staying the course because the market will once again boom. it should exit the market. "What people will remember him for is what he did last. he has three years to reverse Intel's slide--and 36 months can be an eternity in the ever-changing computer industry. Such tales bode ill for Barrett's legacy. competitors say Intel's data centers are virtually empty. Still. In the next two months.In the market for Internet and networking equipment. coupled with Level One managers cashing out. And on Sept. They probably won't be able to squeeze into that cramped conference room. Indeed. how the stock did last. In the past six months. making the acquisition a questionable move. Intel's legacy will loom large
. Demand from companies wanting others to run their Web operations has fallen dramatically since the dot-com meltdown. Sony (SNE ). a maker of chips for broadband devices that speed data around the globe. Web-hosting leader Exodus Communications (EXDS ) filed for bankruptcy." says James L. Indeed. Day says. Few Web hosters are making money. Intel has forged Web-hosting and partnership deals with the BBC. In 1999. Still. "We've never run into Intel in a competitive situation. Barrett has tried to buy his way to market leadership. Intel's executive team will sit down and review the strategic plan that will help determine the course of Barrett's next three years.WEB WOES. Intel developed without Level One's engineers a router chip that's selling well. Freeze. gave competitors the opening to turn out products superior to Level One's.2 billion--Intel's biggest acquisition ever--for Level One Communications. says analyst Brad Day at Giga Information Group. Intel's early efforts read like a "How Not To" guide for business. but wherever they go to map out future plans. The delays. analysts say that even though Intel has poured $2 billion into this business. Day says Intel bet on Level One. he plunked down $2. Grove agrees that the wild cards will be the economy and how well Intel executes. even though it already was late in developing fast ethernet networking products. chief strategy officer at Web-hosting company Genuity.