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ANDY GROVE

The Life and Times


of an American
RICHARD TEDLOW

RICHARD TEDLOW is professor of business administration at Harvard Business School. In addition to


writing numerous articles for the Harvard Business Review, Fortune and many other publications, Dr. Tedlow
is the author of Giants of Enterprise and The Watson Dynasty. Dr. Tedlow is a graduate of Yale and Columbia.
He specializes in teaching business history and executive education programs.
The Web site for this book is at www.richardtedlow.com.

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Andy Grove - Page 1

1. By the start of Andy Grove’s second year at Belgrade University


Andy Grove was born on September 2, 1936 in Budapest, the country was in a state of uproar. An ant-Soviet demonstration
Hungary. His given name at birth was Andras Istvan Grof. He which started peacefully ended with Russian troops shooting
was born into a solid middle class Jewish family. Andy’s father people. With the University closed, Andy spoke with his parents
George was a partner in a medium-sized dairy business while his about the possibility of escaping to Austria. The Russians were
mother Maria had given up her dreams of becoming a concert going around summarily arresting young people on suspicion of
pianist in order to have a family. being involved in the demonstration, so Andy Grove decided it
was now or never to get out of Hungary. In December 1956, Andy
On September 1, 1939, Germany invaded Poland and the Grove bid farewell to his parents and headed to Austria.
hostilities of World War II commenced. Like all of Europe, the
Grof family were swept up in the dramatic events which then Getting across the border at that time was a very risky endeavor.
unfolded. In 1942, when Andy Grove was five years old, his First Andy linked up with another three youth who also wanted to
father was conscripted to the Hungarian Army. Since he was get out of the country. They caught a train to a town about fifteen
Jewish, George Grof was assigned to a battalion which was miles from the border with Austria and then disappeared into the
clearing roads, building fortifications and performing other hard woods. They managed to link up with an underground of people
labor on the Russian front. In the spring of 1943 Maria Grof who helped them avoid the Russian patrols and make their way
received an official notice which stated George Grof had towards Austria. After a few tense days of hide-and-seek games
“disappeared” and despite all her best efforts she never could played against the very real danger they would be caught, they
find out what had happened to her husband. managed to stumble across a field into a farm somewhere inside
Austria. And no sooner had they made their way across the
When Germany officially annexed Hungary on March 19, 1944, border than they were arrested by Austrian police and taken to
hundreds of thousands of Hungarian Jews were rounded up and an unheated schoolhouse where they were instructed to stay. As
shipped to Auschwitz where they would be murdered in cold soon as the police had left, Andy Grove departed the
blood. Andy and his mother managed to avoid getting shipped off schoolhouse and made his own way to Vienna.
to Auschwitz or any other concentration camps through a savvy
combination of luck, friends and street smarts. They would leave After sending a telegram to his parents telling them he was safe,
Budapest for the country whenever any sweeps for Jews were Andy Grove made his way to the offices of an organization called
just about to happen and then return later when it was safe. They the International Rescue Committee. At first, they were reluctant
also endured the “Battle of Budapest” which would later become to provide him with passage to the United States of America but
described by historians as “one of the bloodiest city sieges of the Grove managed to persuade them. He was included in a group of
Second World War in Europe”. refugees who were given transatlantic voyage on an old
converted troopship that was on its way to New York to be
Due to the War, Andy Grove’s early schooling was a little bit decommissioned. He finally arrived in Brooklyn, New York on
spasmodic and disjointed. This was not a problem because he January 7, 1957 along with 1,715 other Hungarian refugees.
had always earned good grades. Andy did, however, contract
scarlet fever, a common streptococcal infection of the era which “The dangers involved in escaping Hungary were about equal
was treated at that time by having some bone behind his ears with the dangers of staying. Hungary was a pretty sad place in
“chiseled away” by doctors. He was hospitalized for six weeks 1956 and there were strong rumors about people being picked
and then had to stay home for nine months while he was up, people my age, being picked up on the street and herded
convalescing. Andy Grove’s hearing would be permanently away and I thought it was a good time to make a run for it. When a
affected by this bout of scarlet fever. friend of mine and I left Budapest, we had no idea what was
In September 1945, George Grof was finally reunited with his going to happen near the border. You know, there was no
family after enduring years of hardship in a Russian prison camp. Internet in which there was a home page that somebody could
He witnessed absolutely unfathomable acts of sadism and tell us the border conditions of the day!”
cruelty while at the prison camps and had suffered from – Andy Grove
exposure, starvation and lack of medical attention. Putting all
these hardships behind them, the Grof family wanted to get on
with their lives, but this was not easy in post-war Hungary. In 2.
late-1945, the Soviet Union had one million soldiers in Hungary, The Hungarian refugees were taken to Camp Kilmer, a onetime
a nation with a population of around ten million people. The prisoner-of-war camp in New York. Fortunately, however, Andy
Communists took firm control of the country’s government. only stayed there a couple of days. He contacted his uncle Lajos
At first, things seemed to be getting better for the Grof family. and his wife Lenke who welcomed Andy with open arms. They
George Grof was appointed as a director of a state-owned took him from Camp Kilmer and let him stay with them in the
company which bred livestock. Then, when his uncle was Bronx. Within a short period of time, Andy Grove decided it was
arrested in the middle of the night for being a newspaper editor, time to get moving again on his college education. Since he
George Grof was fired and was then informed he would never get couldn’t afford the tuition fees of Brooklyn College or the
another job that would pay more than a quarter of his previous Brooklyn Polytechnic Institute, Grove enrolled at the City College
salary. With the death of Stalin in 1953 and the rise to power of of New York which was government-funded and thus tuition-free.
new Russian leaders, the Hungarian government was instructed “My aim was to acquire a profession that would enable me to
to release most of its political prisoners. According to most become self-sufficient as soon as possible, so I could support
estimates, this was about three-quarters of a million prisoners, myself and set aside enough money to help my parents get out of
including George Grof’s uncle. Against all this background of Hungary and join me in America. I was about to forget college
political unrest and uncertainty, Andy Grove finished his high when I learned about the city colleges. Friends told me all I
school education and prepared to go to the University of needed was ability. Americans don’t know how lucky they are.”
Budapest. – Andy Grove
Andy Grove - Page 2

As with most things in his life, Andy Grove dove into his Andy Grove’s choices eventually narrowed to two companies –
education with gusto. A normal full-time course load was sixteen Fairchild or Bell Labs. While Bell Labs was certainly the place to
credits, but he tried to persuade his curriculum advisor to let him be in the early 1960s, its offices were back on the East Coast
take twenty-one credits despite the fact he didn’t yet speak where he didn’t want to live. Grove eventually decided on
English all that well. He majored in chemical engineering and Fairchild because he had met a chap who worked there by the
took courses in physics, chemistry and calculus. He did receive a name of Gordon Moore.
few F’s while he adapted to this new educational system but once
he was acclimatized, he earned mostly A’s and B’s on all the “Gordon Moore asked me about my thesis, all on his own, and
courses he took at the City College of New York. listened, and got it! He’s a really smart guy – very personable, no
airs. Gordon was a big selling factor, helping me to see what I
“In 1998, Andy Grove said that ‘a lot of what is good in America I wanted to be.”
learned at City College’. It was for him the quintessential – Andy Grove
American experience. In 2005, Grove gave $26 million to
CCNY’s engineering school, the largest donation the school has
ever received. Recalling his first encounter there, he remarked, 3.
‘They accepted me with respect, without condescension. They Andy Grove started work at Fairchild Semiconductor in 1963. He
gave me a start, and they gave it in a classy way. It’s an institution made an immediate impact mainly because he knew how to
that is crucial to the working of America, and America should be program a computer in Fortran – something nobody else in the
proud of it. I am.” company could do at that time. He just happened to have the
– Richard Tedlow right skills at the right moment to solve a problem they faced.
While at CCNY, Grove was constantly irritated by the fact “When I arrived at Fairchild on a Monday morning, my
nobody could pronounce his name correctly. Since this was a supervisor, who was an electrical engineer, gave me a problem.
problem which was easily solved, Grove’s engineering instincts It actually wasn’t that complicated, but it did require taking a
came to the fore. He changed his name from Andras Istvan Grof physical problem and turning it into differential equations, solving
to Andrew Steven Grove with little fanfare. For the next few the differential equations, doing a family of curves, and looking at
years, Andy Grove’s life settled in a fairly predictable but a particular parameter. How lucky can you get?”
productive pattern of attending college during the year and – Andy Grove
working as a busboy at New Hampshire resorts to earn money
over the summer vacations. Andy Grove also got married at Emboldened by this early success, Grove also set about
around this same time, marrying Eva Kastan, an Austrian challenging some of the conventional wisdom at Fairchild.
immigrant, on June 8, 1958. Everyone was focused on surface states but Grove suggested
For all that New York had provided him, Andy Grove didn’t really the effects they were seeing were the results of surface charges
like the place all that much. He disliked the weather and felt the rather than surface states. This caused quite a bit of uproar but
city was gloomy and foreboding. Therefore, when his education eventually Grove’s hypothesis proved to be correct. Grove also
at CCNY was drawing to a close, Grove decided he would take confronted head on and with no subtlety whatsoever the fact the
his new wife and head west to California. Despite the pressing company’s research labs were poorly managed despite the fact
need to earn some money to help his parents, Andy Grove some very smart people worked there.
decided he would attend graduate school at the publicly funded Grove worked hard to succeed at Fairchild with a passion very
University of California at Berkeley few others matched. From 1963 to 1968, he published four
Andy and Eva Grove arrived in California early in the summer of articles in academic journals based on his thesis, authored or
1960. He enrolled in Berkeley’s fluid dynamics post graduate coauthored a further twenty-six articles on new developments in
program. This was the same year the Democratic party chose solid state electronics and filed for two patents. He was also busy
Senator John F. Kennedy of Massachusetts as its candidate to raising a family and teaching a graduate course in
run against the Republican party’s candidate vice president semiconductor device physics at Berkeley. And, just to top things
Richard Nixon. When Kennedy was made president of the off nicely, Andy Grove finally had managed to get his parents out
United States the following May 25, he announced that space of Hungary around this same time. The Hungarian government
exploration would be a major theme of his presidency. It was a were receptive to anyone who would soon be drawing an old-age
great time to be an engineer. Grove was at Berkeley about four pension moving to the West. Andy’s father was fifty-seven and
years before what would be termed the “Free Speech his mother fifty-five in 1962 so the government gave permission
Movement” was launched leading to student strikes and so forth. for them to immigrate. They eventually made their way to Silicon
Valley where they lived for the rest of their lives. Andy Grove
At Berkeley, Andy Grove plunged into his thesis and managed to believed in being busy every waking moment.
come up with something which would ultimately be published in
the chemical engineering field’s top academic journal, the The longer he worked at Fairchild, the more frustrated Andy
Journal of Fluid Mechanics. It was clear Grove could establish an Grove became by the company’s dysfunctional nature. Fairchild
academic career if he was so inclined, but he wanted to get out had become enormously successful as the market for integrated
and earn some money to help his parents. He also wanted to do circuits grew but there was considerable internal problems at the
“something useful” rather than stay at universities all his life. One company. People were continually leaving Fairchild to form their
of his professors suggested Grove should look for work in solid own companies. Charlie Spork, Fairchild’s manufacturing
state physics which was just starting to take off. Grove hit the job manager, left to establish National Semiconductor and invited
market but initially found most companies thought his Grove to come with him. Andy considered this offer very
background in chemical engineering was a disadvantage rather seriously but in the end stayed with Fairchild because he liked
than an advantage. His personality was also quite strong, and Gordon Moore. Then, in May or June 1968, Gordon Moore
people either loved him or hated him right off the bat. confided to Andy Grove that he had decided to leave Fairchild.
Andy Grove - Page 3

“There was a conference on solid state devices. Grove arrived a under certain operating conditions it simply did not work. Despite
day prior to Moore, who was stuck in meetings at Fairchild. When that, the 1103 delivered a lot of bang for the buck and the chip
Moore did arrive, Andy played his accustomed role, busily sold well. Within two years of its introduction, the 1103 was the
updating him about what had gone on at the conference. But biggest selling semiconductor in the world. This was enough to
Grove could see Moore was distracted. Grove probed, and put Intel on the map as the memory company and on the strength
Moore said to him, ‘I’ve decided to leave Fairchild’. ‘What are you of that success Intel went public in 1971, the first year it was
going to do?’ a suddenly very excited Grove asked. ‘I’m going to profitable.
start a new semiconductor company,’ said Moore. Without In those days, Intel was highly vulnerable. The company’s own
hesitating one second, Grove blurted out, ‘I’m going with you’. production capacity was fairly rudimentary. Intel was also forced
Grove was never actually asked to join Intel. He invited himself. to send its best engineers up to Canada for months at a time to
How did Moore react? ‘Gordon didn’t say no. I don’t remember help a licensee get geared up for manufacturing. Once that
what he said. I mean, he didn’t exactly hug me. But then he hasn’t license had expired, however, Intel moved quickly to change its
exactly hugged me or anyone else in my presence, then or any production line from using two-inch wafers to three-inch wafers.
other time. So we started feverishly talking about what was to be That enabled Intel to make its own chips cheaper than its
Intel’.” licensee could match.
– Richard Tedlow
“The development of the 1103 and the ramp-up to mass
Despite the fact Gordon Moore was happy for Andy Grove to production have a lot to teach us about Intel’s policy towards
come to work for Intel, he wasn’t offered any stock in the new competition. Specifically, it didn’t want any. It wanted to innovate
company. The only three founding shareholders were Gordon constantly, make the most of each technological advance, and
Moore, Robert Noyce and venture capitalist Arthur Rock. Noyce then move quickly on to the next one. This meant a high R&D
and Moore both purchased 245,000 shares at $1 each while budget, but the money was well spent if it resulted in high-margin
Rock bought 10,000 shares at that same price. Rock then sold new products. The goal was to get rid of companies that had
another block of 250,000 shares at $10 each, giving the entered its markets, like Microsystems International, but even
company about $3 million in start-up capital. Intel was more important, to prevent entry by big, aggressive companies
incorporated on July 16, 1968. with expertise and organizational capability, like Texas
For Bob Noyce and Gordon Moore, participating in a start-up Instruments.”
was old hat since they had already been in two others but this – Richard Tedlow
was a completely new experience for Andy Grove.
4.
“I was scared to death. I left a very secure job where I knew what I The early years of Intel were an intense learning experience for
was doing and started running R&D for a brand new venture in Andy Grove. Even though his educational grounding was solidly
untried territory. It was terrifying. I literally had nightmares. I was on the technical side of the business, he was forced to become a
supposed to be director of engineering, but there were so few of business manager as well. He focused intensively on solving the
us that they made me director of operations. My first assignment problems that inevitably arose when new products were being
was to get a post office box so we could get literature describing taken from the lab and integrated into high volume production
the equipment we couldn’t afford to buy.” lines. He also dealt with the challenge of getting people with
– Andy Grove healthy egos to put aside their personal interests and do what
Gordon Moore had long felt building semiconductor memory was was best for the company – no small challenge in and of itself.
a product a new company could be built around so it was to this Gradually, during 1971 and 1972, Intel’s ability to manufacture
activity the small Intel team first turned its attention. There were what it designed began to improve. This was just as well because
two competing processes by which this memory could be built in Intel was also expanding its product line all the time. An erasable
the late 1960s – the traditional “bipolar” method and a newer programmable read-only memory (EPROM) chip was developed
process called “metal oxide semiconductor (MOS)”. Since it as was the microprocessor – a single chip which combined all of
wasn’t yet clear which was best, the company started out using the logic circuitry of a number of other chips. In all of these areas,
both technologies. Bearing in mind the fact there were no Andy Grove was right in the front lines of everything Intel did.
personal computers in 1968 when Intel started and the prevailing Grove’s contribution to Intel was formally recognized in 1974
magnetic core memory technology for mainframes was well when he was appointed to the company’s board of directors. The
understood and firmly entrenched, Intel knew it would have to fact that only two decades previously he had been an
come up with something which was an order of magnitude better eighteen-year-old youth living behind the iron curtain in
than anything already on the market if it were to succeed. Budapest was not lost on him. Andy Grove was now vice
Furthermore, the company intended to also avoid the trap of president of operations and a member of the board of one of the
commoditization by being a moving target. It wanted to invent world’s leading technology companies. In fact, he was now well
new products, price them at a premium, skim the cream of being on his way to becoming virtually indispensable in a company
the first-mover and then move on to something better before which would itself become absolutely indispensable.
competitors could drive the prices down on its products. This was
In 1973, Intel recorded $65 million in sales and $9.2 million in
a very ambitious target.
profits. It seemed like the company’s biggest challenge in 1974
In September 1969, Intel introduced its first memory chip, the was going to be how to deal with all its growth and increasing
1101. It was a flop and didn’t generate any sales in the complexity, but then suddenly the semiconductor industry went
mainframe market. Then in October 1970, Intel came out with its into a severe slump. By the end of the year, Intel would be forced
1103 DRAM – a dynamic random access memory – which was to lay off fully 30-percent of its 3,500 employees. The company
demonstrably better than anything else on the market at that still managed to post sales of $135 million for 1974 but by 1975
time. The memory chip had numerous flaws including the fact Intel’s profits were well down on what had been achieved
Andy Grove - Page 4

previously. It was clear the company was operating in a very and Fujitsu to name just a few. Intel introduced its new 8086
tough environment. microprocessor to compete against Motorola’s 16-bit 68000
which was widely considered to be technically superior.
“Our naive and evidently erroneous belief was that growing at
top speed was particularly difficult, and that once this growth To compete against an obviously superior microprocessor, Intel
stopped life would get a little easier. It didn’t work out that way. sales staff stressed the company’s customer service and
Growth was a lot of work, but it hid a lot of sins. Because of support. One of Intel’s field engineers had an “I’ll try anything”
supply-limited situations one can get away with doing fewer mindset and he decided to pitch the Intel 8086 to IBM, the world’s
things and less perfectly. When you are growing, you are largest and most sophisticated information processing
working very hard but while the growth mode may be hard on organization. He just happened to call when IBM was in the
one’s physique, it is relatively easy on one’s mind.” process of designing what would become the IBM personal
– Andy Grove computer. IBM agreed to use the 8086 chip in their computer
which was unusual because they usually manufactured their
To cope with this downturn in business, Intel increased its own components in-house. The Intel salesman assumed this
investments in R&D as well as in other corporate functions. Even would result in the sale of ten thousand units a year but ultimately
as it was forced to lay off people from the production side of the the IBM decision grew to millions of units annually for Intel.
business, new people were being hired to work in new initiatives Interestingly, Intel itself had looked at the concept of a personal
like Intel’s recently established microcomputer division. Memory computer and decided there was no market for it.
products continued to be Intel’s bread-and-butter earners but the
company was actively interested in starting other new lines of “In the mid-1970s someone came to me with an idea for what
business as well. was basically the PC. The idea was that we could outfit an 8080
Of course, not everything Intel tried to do turned to gold. Early in processor with a keyboard and a monitor and sell it in the home
the company’s history, Intel had purchase Microma, a digital market. I asked, ‘What’s it good for?’ and the only answer was
watch manufacturer. Since digital watches used electronics and that a housewife could keep her recipes on it. I personally didn’t
that was Intel’s forte, there was an assumption Intel could run see anything useful in it, so we never gave it another thought.”
Microma easily. That turned out to be very wrong. The key – Gordon Moore
difference was Microma was a consumer products company and The deal to supply microprocessors for the IBM personal
required consumer marketing skills which Intel did not possess. computer was also good for Intel in another way. IBM agreed to
Eventually, all of the good people from Microma were transferred invest $400 million to acquire 20-percent of Intel’s stock in order
elsewhere in Intel and the company was shut down. to ensure that Intel survived and would be able to supply IBM with
By 1978, Intel had been in business for 10 years. Sales that year microprocessors, memory parts and MOS technology. About
were $400.6 million generating $44.3 million in profits. The two or three years later, IBM then sold its Intel shareholding for
company now employed 10,900. Intel was still pretty much a $625 million once it was clear the company could stand on its
semiconductor developer and seller. The idea of a home own two feet against the big corporations like Texas Instruments,
computer market had not yet entered the company’s Motorola and the Japanese companies.
consciousness or product lines but the market forces which IBM launched its PC in 1981 and it was an immediate hit
would eventually make their presence felt were gathering in the generating a dramatic explosion in demand for Intel
background. Andy Grove spent most of his time in this period microprocessors. By 1984, IBM’s PC sales were estimated at $5
focusing on how to get managers that could provide the “oomph” billion with a new PC being manufactured every forty-five
and enthusiasm Intel needed to keep on growing each year. This seconds. Sales at Intel rose to $1.6 billion, placing the company
ended up being quite a challenge because most technical people at 226 on the Fortune 500. After-tax profits for Intel in 1984 were
tend to be introspective and well-meaning rather than $198.2 million and then all of a sudden demand softened. In
aggressive and enterprising. 1985, Intel recorded sales of $1.4 billion and its net income
“To a large extent, I think we owe our success not to luck but to a essentially disappeared, plummeting to just $1.5 million. The
culture of problem orientation, of being critical of ourselves and company was suddenly being attacked from all sides and from all
thereby urging ourselves and our organization to perform better directions. Against this background of severe market gyrations,
and better. This virtue, however, can be carried to such an Intel launched its new 32-bit 80386 microprocessor. In spite of
extreme that it can bring about our own paralysis through this, Intel’s sales in 1986 slid to $1.3 billion and the company lost
self-doubt. So let’s try to keep our perspective and permit more than $173 million – its first year in the red since Intel went
ourselves to enjoy the fact that we have never yet in our history public. And while all of this was happening, Andy Grove was
had a problem we didn’t solve.” actually on a sabbatical from Intel in early-1986. His planned
– Letter from Andy Grove to the twelve-month break was just about to be cut short.
company’s top management, October 1978 “The culprit was the PC boom. Demand exceeded everyone’s
5. expectations, and Intel built capacity and grew in every way it
could to meet that demand. The bubble burst at the end of 1984,
In 1978, Intel ranked 486 on the Fortune 500. The following year, and Intel was left with ‘an overhead structure appropriate to the
its ranking rose to 386 as its market capitalization increased from $2 - 3 billion company we wanted to be rather than the $1.0 - 1.5
$638 million at the end of 1978 to $1.3 billion a year later. Andy billion company we are becoming’. The Management Report in
Grove was made president and chief operating officer of the the 1986 Annual Report contained a postscript from Intel’s
company at the same time Gordon Moore became CEO. Instead chairman, Gordon Moore. He announced that although he would
of being under the radar, Intel was now facing a full frontal remain chairman, Andy Grove would become chief executive
assault from the largest semiconductor companies in the world – officer in April 1987. ‘Andy has been at Intel since the beginning,
Texas Instruments, Motorola, National Semiconductor, Hitachi and as president and chief operating officer, he has been one of
Andy Grove - Page 5

the principal architects of this company’s growth, direction and “We learned that high market share was critical for success, and
character. He is an extraordinarily talented manager’. ” that to get market share we had to be willing to invest in
– Richard Tedlow manufacturing capacity. Such investments involve big bets
because they have to be made in advance of actual demand. We
6. learned that commodity businesses are unattractive, so we
“We’re in the business of revolutionizing society. This is a didn’t want to license our intellectual property anymore. Intel
profit-making organization. That’s the way we intended it . . . and intends to be the vendor of choice. We will extend our
that’s the way it is!” architectural leadership.”
– Gordon Moore – Andy Grove

By the mid-1980s, the Japanese were really starting to make When Intel was ready to launch its new 80386 microprocessor,
their presence felt in the semiconductor industry. They were the company announced that contrary to accepted practice, it
coming to the market with superb products, factories which could would not be establishing a second source manufacturer for
produce huge volumes and access to very low cost operating these chips. This was a very gutsy decision. In effect, Intel was
capital. They were also aggressive marketers who were saying it could serve as its own second source and was not
prepared to quote 10-percent below whatever price Intel or any prepared to license other manufacturers who might eventually
other memory producers were charging. Andy Grove was quite undercut its own pricing. This was a real moment of truth for Intel
open in describing their threat to Intel’s business as “scary”. because if IBM had insisted that the company establish a second
source supplier, things could have gone very differently for Intel.
These developments generated lots of internal debate at Intel.
On the one hand, some people wanted to build a gigantic factory As it was, however, IBM was in no rush to purchase the 386 chip.
and take on the Japanese head-on. Others felt microprocessors It was still pretty much focused on mainframes and viewed the
were growing and were more profitable anyway, so the company PC as a minor revenue stream. That changed, however, when
should put more emphasis on them. While all of this was Compaq decided it would make a portable PC that could run IBM
happening, Andy Grove said: “We had lost our bearings. We software. Compaq brought the 386 chip from Intel and in
were wandering in the valley of death.” September 1986 introduced its Deskpro 386, stealing a march
on IBM. Nobody was really aware of it at the time but this marked
“At one point in mid-1985, after a year of ‘aimless wandering’, the birth of the IBM compatible market. Compaq reached more
Grove said to Moore, ‘If we got kicked out and the board brought than $1.2 billion in sales in 1987 on the strength of Intel’s
in a new CEO, what do you think he would do?’ Moore microprocessor, faster than any other company in history.
immediately replied, ‘He would get us out of memories.’ ‘I stared All of a sudden, IBM stopped dictating the pace of change in the
at him, numb, then said, ‘Why shouldn’t you and I walk out the PC market, and Intel assumed that mantle. Grove moved quickly
door, come back, and do it ourselves?’” and organized Intel into six operating groups, each of which
– Richard Tedlow reported directly to him:
As easy as this decision may look in hindsight, making it happen 1. Microcomputer Components Group
was intensely gut wrenching for Intel. It actually took about three 2. Systems Group
years for the company to shut down its memory factories, tell its 3. Application Specific Integrated Circuit Components Group
memory customers Intel was exiting the business, let people go 4. Components Technology and Manufacturing Group
and get all its staff up to speed with the changes. Keeping Intel’s 5. Sales and Marketing Group
top talent and deploying them in developing microprocessors 6. Administration Group
rather than memory chips was a particularly tough assignment Running the company was becoming increasingly complex, in
for Grove. just the same way as Intel’s products were becoming much more
When Andy Grove took over as CEO of Intel on April 23, 1987, sophisticated. For example, the 80386 microprocessor
the computer industry was still dominated by IBM in mainframes contained 175,000 interconnected transistors. Within the space
and Digital Computer in minicomputers. IBM had sales of $54.2 of twenty years of development, the number of transistors on a
billion that year and a market capitalization of $72 billion. Intel’s microprocessor had increased to 1.75 billion in twenty layers on
sales, by comparison, were $1.9 billion and its market a chip roughly the size of a thumbnail. As can be imagined,
capitalization was $4.3 billion. Yet, in spite of the fact Intel’s managing the development of such intricate and detailed
entire market capitalization was less than the $5.3 billion in development work is not a trivial exercise. Andy Grove had to
profits IBM earned in 1987, Intel was just about to figuratively manage people who had the technical skills required to pull off
poke IBM in the eye. these challenges and turn them into a team.

“During the eleven years that he was Intel’s CEO, Grove made “There is such a thing as luck and then you grab it and exploit it.”
his share of mistakes. He was also lucky, making some guesses – Andy Grove
that could have turned out not as well as they did. Above all, Intel’s strategy with the 386 chip was to lower prices gradually so
however, Grove was shrewd and astute about the one issue it would both sell more chips and discourage others from
concerning which he had to be right. Grove understood that ‘The entering its markets. The company also developed a variety of
PC Is It.’ This insight should not be taken for granted.” microprocessors for specific markets which used stripped down
– Richard Tedlow and therefore cheaper versions of the 386 chip. Intel also sold
The strategy that Andy Grove then put in place for Intel to move circuit boards and complete PCs. As the PC market moved from
forward in the new era of being microprocessor-centered was being vertically structured (where one company did everything)
easy to describe even though difficult to execute. to horizontally structured (where different companies competed
for different parts of the PC market), Intel prospered. A good
indicator of this was the fact the earliest IBM personal computer
Andy Grove - Page 6

had contained about $20 worth of Intel chips. The Compaq In another hotly debated move, Grove announced Intel would not
Deskpro had $800 worth of Intel products inside it. name its next generation chip the 586. Instead, the company
On the strength of that strategy, Intel’s sales increased to $2.8 introduced the “Pentium” name. This upset a lot of the engineers
billion in 1988 and $3.1 billion in 1989. By the time Intel launched in the company and others in the industry who were comfortable
its new 80486 microprocessor in April 1989, it was clear the with the progress from 286 to 386 to 486 but it was absolutely
company was moving ahead in leaps and bounds. Most analysts necessary in order for Intel to secure trademark protection for its
estimated the development costs for the 486 chip topped $200 next-generation and other future microprocessors.
million so it was clear any competitors would need to make some “Read about Intel today, ask Andy Grove today what the secret
pretty hefty investments to get into the game. of its success has been, and it is not hard to arrive at an answer.
“Decisiveness and focus became the hallmarks of Grove’s That answer is ‘focus’, both as a noun and as a verb. Intel could
tenure as CEO. Another Andy – Andrew Carnegie – used to say, focus. Intel had focus. It was a focused company. The focus,
‘Put all your eggs in one basket and then watch that basket’. after the RISC sideshow was put to bed, was on the growth and
Grove lived by that rule. Running Intel in the 1980s meant living management of the x86 product roadmap. So successfully and
on the edge. Exiting DRAMs, sole-sourcing the 386, CISC so creatively was this strategy executed that a mere quarter
versus RISC – the wrong decision, or even more insidiously, the century after its founding, in the midst of the most turbulent of
right decision poorly implemented, could have hobbled Intel. The industries, Intel grew into one of the most profitable companies in
1990s were to be the years of Intel’s greatness. But there was all of business history.”
nothing guaranteed about that.” – Richard Tedlow
– Richard Tedlow By the time of its twenty-fifth birthday in 1993, Intel employed
7. almost 30,000 people, had sales of $8.78 billion and generated
profits of almost $2.3 billion. The company was now at number
While it was true everyone in the computer industry knew of Intel
56 on the Fortune 500 list, and the magazine noted “Intel was the
by 1990, this was not true of the world outside. Intel was still at
most profitable company of its size in the world”. Andy Grove was
that stage a business-to-business marketer staffed by engineers
suitably pleased with Intel’s progress but he didn’t for a minute
selling to other engineers. That changed when the company
want the company to start resting on its laurels now.
started marketing its newer processors directly to consumers. By
doing this, Intel managed to get consumers to ask for computers “The job of a manager is to elicit peak performance from
which had its latest microprocessors onboard rather than waiting subordinates”.
until the manufacturers were interested in making the change – Andy Grove
themselves. This was the basis for the highly successful “Intel
Inside” marketing program. From 1990 to 1993, Intel spent As a reflection of Intel’s growing power within the computer
almost half-a-billion dollars on the campaign, in the process industry, Andy Grove came into personal contact with the CEOs
managing to establish Intel as one of the world’s best-known and of numerous other companies. He met with Louis Gerstner who
therefore most valuable consumer brands. became CEO of IBM and suggested IBM should exit
semiconductor manufacturing and become a services company.
Andy Grove also made what would be another key decision in the
IBM would indeed end up doing that successfully, although it’s
mid-1990s. Intel’s 286, 386 and its new 486 chips used what was
unlikely this decision actually was precipitated by Andy Grove’s
known in the industry as complex instruction set computing
suggestion. IBM would not, however, exit the semiconductor
(CISC). A new type of chip had been developed by some
manufacturing visit as Grove had suggested and this became a
companies based on a different set of technical architecture
strong element in the turnaround of IBM over the next few years.
called reduced instruction set computing (RISC). The
proponents of RISC suggested since these chips performed Andy Grove also met a few times with Bill Gates, the CEO of
more efficiently, they would ultimately be able to outperform Intel. In one famous incident, Bill Gates came to a dinner party at
CISC chips by a significant factor. Grove had to decide whether Andy Grove’s home in Silicon Valley. During the course of the
Intel should continue developing its own proprietary CISC chips conversation, Gates mentioned he felt Intel was using
or migrate to the technically appealing RISC architecture in just Microsoft’s intellectual property in a product which he believed
the same way as Intel had once exited the memory business. For competed with Microsoft. He made the mistake of suggesting
a couple of years, Intel even went as far as staffing a 250-person this might be “actionable” in a court of law at which point Andy
division which developed an Intel RISC chip which was released Grove reared up from the table and said: “Do you mean to
as an optional add-on for the 486 chip. In the end, Grove realized threaten me with legal action at my own dinner table?” The rest of
the fact more than $30 billion had been invested in developing the night was spent in a rather uncomfortable atmosphere
software for Intel’s 286, 386 and 486 chips meant there was a created by the two CEOs who were both known for speaking their
huge incentive to keep improving the current CISC architecture. minds bluntly and forthrightly. Andy Grove would later describe
Intel quietly disbanded its own RISC team and used them the evening in this way: “Personally, we had a little hiccup”.
elsewhere in the organization. At the same time, Grove Eventually, however, Intel and Microsoft met with each other a
announced the company had future generations of CISC chips couple of times a year. It was in the interests of both companies
under development and performance would continue to increase to preserve and strengthen what the press came to describe as
well into the future. the “Wintel franchise”. Admittedly, both companies were
competing with each other to corner the lion’s share of the value
“Looking back at these debates, I shake my head about how I within the PC industry but both also recognized the other as a
could have even considered walking away from our traditional complementor. Intel and Microsoft worked together to get people
technology that then had, and still has, phenomenal headroom to buy new and better computers even and then competed to see
and momentum. Not all paradigm shifts are paradigm shifts.” whether people would pay more for better processors or for more
– Andy Grove software. This competition between them is quite intense.
Andy Grove - Page 7

“The differences between Intel and Microsoft occur because our semiconductor industry was in the middle of what was described
priorities are fundamentally different. We sell a new chip with a as a very painful slump. Intel was still going strong because more
new computer; we don’t sell many replacement chips or than 70 million new personal computers were sold that year and
upgrades. Bill sees a big installed base to take care of.” between 80- and 90-percent of these machines had Intel
– Andy Grove microprocessors inside.
At one time, Intel also attempted to develop what was termed “We believe that Intel is a tough competitor and is positioned to
“Native Signal Processing” (NSP) technology which had maintain its dominant market position for the foreseeable future.
embedded software designed to make powerful applications We believe that Intel views all competition, both existing and
work better in an effort to get people to upgrade to more powerful emerging, as credible and serious. It is the paranoia that is
processors. Microsoft viewed this as trespassing into its own ingrained in the Intel culture that has motivated the Company to
territory. Intel dropped NSP once Microsoft introduced Windows attack its own product line with new products before its
95 because it was not compatible. competitors get a chance.”
Intel’s success also meant it had its detractors. When the new – Alex Brown analysts briefing
Pentium chip was shown to have a technical bug in its floating The ongoing commercial success of Intel and the fact its CEO
point unit (FPU) in October 1994, some of that intense feeling was a Hungarian immigrant who arrived in America penniless
surfaced. The bug was so obscure it was estimated the average and then made good on the American Dream didn’t go unnoticed
spreadsheet user would run into a problem once every 27,000 by the press. Andy Grove was selected by Time magazine as
years. By December that year, this minor flaw had transmuted “Man of the Year” for 1997. Andy also published an article in
into a major public relations disaster for Intel. IBM was quick to Fortune which detailed his very private battle against prostate
pounce on an opportunity to get one over Intel and it announced cancer. He had also published a number of business books,
it would stop shipping Pentium-based IBM PCs immediately. It including what would become a bestseller Only the Paranoid
wasn’t until Intel announced a no-questions-asked product Survive. All in all, Andy Grove’s public profile was polished.
replacement offer that all the controversy subsided.
“If you want to maintain your success, you have to dodge the
bullets that come from your competitors. Most importantly, you
8. have to dodge the most dangerous threat to your business,
“I have been rabid about four things in my career at Intel: which is when your environment changes in such a way that the
motherboards, Intel Inside, chipsets, and video conferencing. whole rules of the game get changed, and all of a sudden you find
What if I had been equally rabid about networking? Intel could that your business is in a different game than it used to be before.
have been a very different kind of company.” I feel one has to be constantly alert in business to the
– Andy Grove unexpected, so ‘only the paranoid survive’ is sort of my motto.”
– Andy Grove
Despite the fact Intel was going well in the mid-1990s, Andy
Grove had his fair share of mistakes. In 1995, he made a When Intel’s sales for 1997 soared to $25 billion placing the
concerted effort to launch Intel’s video conferencing system company at number 38 on the Fortune 500, Andy Grove started
called ProShare. At one stage, Intel had 700 people working on thinking seriously about retiring as CEO. He had already
the product but it failed to gain much traction in the marketplace. groomed Craig Barrett as his successor and the official
The fact the system would require everyone to have ISDN lines announcement was made on March 26, 1998. At the time of his
installed in their houses was just too steep a technical hurdle to stepping down as CEO, Andy Grove was sixty-one years old.
overcome. Even when ProShare was redeveloped to work with Grove would continue to serve as chairman of the board of
ordinary phone lines instead, the concept of video conferencing directors of Intel but responsibility for the day to day running of
never really took off. Ultimately, ProShare would swallow the company would now fall to the new CEO.
three-quarters of a billion dollars and soak up five years before So what was Andy Grove’s legacy as CEO of Intel? As in most
Grove would discontinue this initiative. things in life, there are both positives and negatives:
On a personal note, Andy Grove was also reminded that he was ü In purely financial terms, Intel under Grove’s leadership could
only human. He had a bout with prostate cancer and had to hardly have done any better. By this metric alone, Grove’s
undergo radiation treatment at a local hospital. Whether this will tenure as CEO was a great success.
reoccur later in his life remains to be seen but as of ten years
later, it appears his treatment has been successful and the ü In strategic terms, Intel was struggling for direction when
cancer seems to be in remission. Grove researched his own Grove became CEO. Grove exited the memory business and
treatments options very thoroughly and faced the facts as they got the company focused on microprocessors which ended
were rather than how he wished things were as he went through up being exactly the right thing to do. That took courage and
this episode in his life. tenacity to pull off.
Despite these problems, Intel in 1996 was in fine shape. Sales ü Grove was quick to pick up on the fact the personal computer
that year topped $20.8 billion, up 29-percent on the previous would be a big commercial success. That allowed Intel to
year. Net income of $5.2 billion was up 45-percent on the position itself advantageously in this market before others
previous year. Market capitalization was $111 billion placing Intel were aware what was going on.
among the top one hundred companies in the United States. Intel ü Grove wasn’t afraid to make the tough decisions. When Intel
now employed 48,500 people. If you had purchased 100 Intel refused to license its 386 to anyone else, that was a real
shares at the time of its public listing in 1971, you would now have moment of truth. If Intel had acted conventionally , its future
shares which were worth more than $2 million. And the may have turned out quite differently. By doing this, Andy
noteworthy point about all these facts was that in 1996, the global Grove showed he had nerve.
Andy Grove - Page 8

ü Grove integrated into the DNA of Intel the fact change would Regardless of how Andy Grove is viewed, there is no question he
be a constant. The company has never frozen its designs but would be a hard act to follow. The fact he would be staying on to
continues to develop more complex chips all the time. Intel look over the shoulder of the new CEO as chairman of the board
views cutting edge technology as a business necessity rather was also noteworthy. This meant Craig Barrett would have his
than as something which would be nice to have. Intel never work cut out for him. It was widely assumed Barrett would get
settles for “good enough”. busy fine-tuning Intel’s operations while Grove would look at
more strategic issues like where the company should be heading
ü Grove always insisted the facts should be faced squarely and in the future.
honestly in every situation. He instilled a sense of discipline
within Intel that it was worth persevering to drill down and find Andy Grove formally retired from Intel on May 18, 2005 when
out what was really going on. Craig Barrett was appointed as chairman of the board and Paul
Otellini was made CEO of the company. Grove adopted the title
û There is no question Grove could have handled the Pentium of senior advisor and is no longer a member of the board of
floating point flaw better. This was a classic case where he let directors of Intel. In his final presentation to the board, Grove
things get out of control rather than staying in the driver’s seat. used three slides:
It also showed that his Intel Inside campaign had been so
successful people now viewed Intel as a consumer products
company rather than a business supplier. Ironically, the entire The board of directors should trust the
issue generated enormous brand recognition for Intel and business judgement rule –
once the problem was addressed this actually helped drive which provides broad protection to
the acceptance of the Pentium chip in a powerful way. informed business judgements in order
to stimulate risk-taking innovation.
û Equally, Grove has a sharp tongue. He doesn’t make any
attempts to hide his anger. He is well known for his ability to
turn grown men into mush inside Intel. At a personal level, he The board of directors should
is smart, relentless and sometimes dismissive. These always play the role of gravity
character traits make him difficult and demanding to work for for the governance pendulum.
and people inside the company realize they have to know their Lead as the swing starts, retard as the
stuff before approaching him. The people who respond best pendulum has swung to the extreme.
to this kind of approach tend to be those who have the self
confidence to give as good as they get. Grove seems to have
an inexhaustible appetite for mental jousts. For those who Conform to Intel values. Strive to:
make it past this, however, they often find Grove manages to • Encourage and reward informed risk taking
get the best out of them which is often something they • Be open and direct
appreciate. It gave them a mental edge which may be • Constructively confront & solve problems
reflected in why Intel turned in such a great performance. • Communicate mutual intent & expectations
û Grove was determined in pushing the Pro-Share technology • Do the right things right.
even when the initial data showed the market was not
interested. This ended up costing Intel a lot of money.
û Grove was never afraid to court argument, controversy, “For Andy, these rules defined the job of the board. Andy was the
fearlessness or commitment. Over time, these traits have last man associated with Intel’s founding remaining. Now he was
become woven into the DNA of Intel. From a business gone. His tenure on the board had come to an end, but to
perspective, this is good although from a human describe him as retired would be quite mistaken. His attention
point-of-view, perhaps they are slightly less desirable. Grove turned to both health care and to the activities of the Grove
was delighted to be named one of “America’s Toughest Foundation and the Kinetics Foundation. Andy and Eva wanted
Bosses” by Fortune magazine in 1984 although by the late to give others the chance to enjoy what America has made
1990s, he was starting to get tired of seeing articles headlined possible for them. Not surprisingly, these foundations are
“Attila the Hungarian”. action-oriented.”
– Richard Tedlow
û Grove did miss some exceptional commercial opportunities.
Intel briefly considered buying Cisco when it was a $200 “For all that has been written about strategy, I define it simply as
million company. If Intel had done that, it could have ‘what we do’. Strategy should change when the external
generated exceptional returns for its shareholders. Intel has environment (the forces that affect us) and/or the internal
always generated its own growth internally rather than environment (our capabilities and knowledge) change.”
through acquisitions. While many people may see this as a – Andy Grove
strength, in some regards it is a shortcoming. Cisco, for
“Not everyone loves Grove nor does everybody admire him. No
example, has a market capitalization of more than $108 billion
one, however, denies that he is unique. We all are. But Andy
by 2005. If Intel had acquired Cisco and merged its operations
Grove is uniquer than most. He never quits. He is pugnacious.
in with its own, the results would have been very impressive.
He is tenacious. The story of Andy Grove is unfinished because
Intel has also been very poor at internal venturing or spinning
his life is a work in progress.”
off successful subsidiaries. The company has simply focused
– Richard Tedlow
on being at the top of the microprocessor industry.

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