The Thrill of 'Clawing for Market Share' Is Back

Craig R. Barrett, CEO of Intel Corp. since May, 1998, is as cool as his predecessor Andrew S. Grove was hot. But don't let Barrett's placid mien fool you: He's as tough as they come, with a biting wit. Trained as a metallurgist, Barrett quit his job as a Stanford engineering professor to join Intel in 1974. He rose to the top on his operations talent -- Barrett is credited with turning Intel into a nonpareil manufacturer -- but in the last two years, he has been moving into the role of visionary-in-chief. Barrett spoke with Business Week correspondent Andy Reinhardt in the CEO's unadorned conference room.

Note: This is an extended, online-only version of the interview that appears in the Mar. 13 issue of Business Week.

Q: How is Intel changing?
It's a very interesting time. We still are driving our core [microprocessor] business as hard as ever, and [it's] still doing pretty well. But we've supplemented it with new growth initiatives, which are very exciting and very different for us. We are acquiring companies, acquiring people, and putting a new image on top of the big powerful chip monster that eats the world.

Whether it's networking or cellular communications, server appliances or server farms, there's a lot more buzz and energy, which is causing the company to change the way it behaves. It's not just the big machine continuing to roll on: [We have] a bunch of smaller businesses starting up, which are forced to compete, scratch, and claw for market share.

Q: You've started other businesses before. What's different this time?
A lot of the initiatives we had in the past were subordinated to the microprocessor business, not so much new business thrusts as something designed to augment and support the existing Job 1 business. But when you start to look at server farms or cellular communications, these are pretty well removed from microprocessors. They're quite different, not just a pimple on our core business.

Q: Why are you undertaking such a massive overhaul of your business?
The financial markets appreciate growth. And the success we saw in the core business during the '90s, when we racked up a decade of 30%-plus compound annual growth rates, well, I don't think anybody figured we'd have anywhere near that rate of growth in the next decade. Taking it a step higher, the PC was at the center of computing during the '90s, but if you look at the next decade, the Internet is clearly it.

The PC is still very important in the Internet era. But there are lots of other things that are important as well. People are going to access the Net off their cell phones -- and more cell phones are sold today than PCs. Networking is becoming more important, whether it's in the home, small business, or enterprise. If you want to be involved in this new era, you have to look for the new growth opportunities. That's exactly what we're trying to do.

Q: How far along are you in reinventing Intel?
One of my measures is how easy it is to get our senior and midlevel managers to go off and work in new areas. If you go back two or three years, the road to success at Intel was working in the desktop-products group. Today, I hear complaints from the microprocessor guys that they're losing their people to go work in the new business areas. I consider this a success.

Q: What are your goals for this process? How will you know when you've gotten there?
The new businesses have to grow faster than the market, and they need to become billion-dollar entities. There are metrics I can put on each one. The rules of engagement I describe to the senior managers are: Whatever we do, we want to be No. 1 or No. 2, we want to grow faster than the industry, we want to be a technology leader, and we want to be profitable. Four simple metrics. If you don't make progress, then why bother?

Q: When you realized that you needed to change the business, did you also think you had to change the culture?
Go back about three years, when this recognition began to hit. We decided we needed some new business thrusts, and we sounded out a number of the midlevel managers, asked them what they thought the issues were. That's when we coined the phrase, the "Creosote Bush." It's a desert plant. They grow some space apart, and they have an oily residue that they drop off their leaves that prevents germination of other plants because water is scarce. We likened the microprocessor business to a creosote bush, because it killed off anything trying to start up around it. It's just a dream business, with wonderful margins and a wonderful market position. How could anything compete with it for resources or profitability?

The challenge we faced was how to grow new businesses in the shadow of the creosote bush. We embarked on an education program and took our top 400 managers, a week at a time, over the space of a year or so, to "Grow the Business" seminars. Their challenge was to learn about the characteristics of new businesses and ecosystems, to get people to talk the same language about new business.

I would go and kick off each one of these sessions, and come back at the end of the week for a couple-hour debriefing session, where they'd give me their best thoughts on what we needed to do. Basically, we took those recommendations -- things like making available internal venture capital funds; providing stable funding to startups to let them get roots into the ground; reassigning senior managers away from the core business to the new businesses to show that we were serious; using different metrics to measure success.

Q: You've decentralized the company. Why?
Intel was described a few years ago as the largest single-cell organism in the world. We used to joke that the chief product-marketing engineer in the company was Andy Grove. Every decision went up the flagpole, because we had only one product. We grew to occupy this central position in computing because of that focus. Now, the environment has changed.... What we did in the '90s was absolutely right, cool, correct, dead nuts on. Given the opportunity again, I think we would do it exactly the same way. But it was a highly centralized, highly focused company. Clearly, you can't run very many businesses that way, so we've had to decentralize. We are now much bigger, and we have a different set of opportunities that don't require us to be as focused. We can't run every decision up the flagpole.

Q: Why are you doing so many acquisitions? Are you copying Cisco's approach?
Cisco has a popular image as being one of the leaders in acquisitions. We had only toyed with acquisitions in networking, while Cisco went at it 110%. And we recognized one of the changes we had to make to continue to grow in that space was to pump up the acquisitions. We really can't develop all this technology internally, so we had to go outside. This is generally accepted now as one of the ways people grow.

Q: You're pouring a lot of money into equity investments in startups. What's that about?
At about the same time that we decided that we had to invest beyond our core business, we also decided that the initial dabblings that Les Vadasz [the director of Intel Capital] and the business-development people had done had the opportunity to pay huge rewards to us. We really stepped on the gas pedal to drive it faster, and in the last couple of years we've been practically doubling the number of investments and the amount of money we've invested, pushing it into the international arena. This is also a very visible element to everybody inside, that hey, we're involved in all this stuff.

Q: Your plan to host the Web operations of other companies baffles some people because it's so different from manufacturing chips. What expertise does Intel have to offer?
If the argument were that we run big silicon factories so we can run big server farms, I would question it, too. But you have to look at it from the standpoint that we run 24 hours a day, 365 days a year. Forget about silicon factories. We went from selling nothing online to more than $1 billion a month over our own infrastructure. Take the recognition that we can do this, and that everybody else is going to have to do this, and that most companies won't have the level of expertise that we have in this space. Why not play there?

Who is the competition? The telephone companies are somewhat our competitors in this space. Are we afraid of them? Not particularly. Other people? Exodus is a player, but not so much in the space we're in. What we're offering is the next level up, a highly certified, managed infrastructure. People who want to outsource their e-business backbones will come to this kind of very reliable, scalable environment. We have a lot of employees, we know how to run command systems, and we have worldwide presence.

Q: What about your plan to sell information appliances? Couldn't they undermine sales of PCs?
The Internet is too big, too powerful, too multifaceted not to have multiple points of entry. But the real question is, if you're going to send e-mail with photo attachments, how are you going to do that? I would argue that you're going to do it on a standard, fairly rich PC, not on a handheld device. As long as it works that way, the PC is still at the center of the action, and these other things are kind of adjuncts to it. My favorite example of this is the PalmPilot, which is successful because it's an adjunct to the PC. It's a peripheral. That's cool for the PC.

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The New Intel

COVER IMAGE: The New Intel

TABLE: Intel's Path beyond the PC

TABLE: The New Intel: Computer Processors

TABLE: The New Intel: Networking Chips

TABLE: The New Intel: Communication Products

TABLE: The New Intel: New Businesses

TABLE: The New Intel: Information Appliances

The Thrill of ``Clawing for Market Share'' Is Back (extended)

ONLINE ORIGINAL: Intel Investors May Need a Bit of Paranoia

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