In an interview with BusinessWeek, the chipmaker's CEO offers his thoughts on the EU antitrust suit, chip demand, Apple, Congress, and more
Intel (INTC) Chief Executive Paul Otellini has had a bumpy two and a half years at the helm of the chip giant. He has fought a pitched battle against rival Advanced Micro Devices (AMD), which last year picked up its first orders at Dell (DELL)—previously an Intel stronghold. He also faces an antitrust battle in Europe, where in the worst case, the penalty could top $3 billion.
A former marketing executive, Otellini is the first nonengineer to head the chip giant. (He has a bachelor's degree in economics, and an MBA from Berkeley.) Despite widening margins and 15% revenue growth in the third quarter, Intel's stock price is hovering at the same level as in May, 2005, when Otellini took the reins at Santa Clara (Calif.) headquarters from the current company chairman, Craig Barrett.
Otellini is pushing ahead. He's positioning Intel to be a leader in WiMax, the broadband standard that could bring fast and cheap wireless computing to both mobile devices and PCs. He's also focusing on the environment. He vows that Intel's new $2.5 billion chip fabrication center in China will be the greenest semiconductor plant in the world. And he's pushing Intel researchers to develop chips that can deliver more computing power with less electricity.
Otellini stopped by BusinessWeek's New York offices on Oct. 22 to discuss Intel, the tech industry, and phenomena from Facebook to Apple (AAPL). Here are excerpts from the conversation.
On social networks:
"The socialization of the Web is going to have a dramatic impact on business. Now I can see it morphing…Think of the Facebooking of your IT shop. I think this is a wonderful phenomenon. We haven't done this yet, but why can't you put up a Craigslist for open jobs? I'm sure word would get out if we did."
On Europe's antitrust case against Intel:
(The European Union charged Intel in July with violating antitrust rules by selling chips below cost to strategic customers. Intel has until January to issue a formal response.) "Their basic argument is that we sold under cost." That argument, Otellini says, "is flawed. I think if that's the central part of their argument, we'll fare fine."
He adds that he finds statements by EU Competition Commissioner Neelie Kroes about Europe's role in regulating "dominant" companies "very troubling. If they take that position with us, or Qualcomm (QCOM), or Microsoft (MSFT), which are all American, I might note, you wonder where they're going long-term.…They could redefine what 'success' means." Otellini says that if the Europeans do not broaden their case against Intel, "the worst case is to write a check." (Fines could be as high as $3.2 billion.)
On the global appetite for Intel chips:
"From a business standpoint, Europe was superstrong this quarter. There's been a big drive toward notebooks. It's the latest fashion statement, particularly in Germany and the U.K.…Globally, we don't see any dark clouds on the horizon. You've got 2 to 3 billion people coming into the market. And a lot of countries have an IT-first agenda.
"It's not just China and India. It's Vietnam, Thailand, South American countries. They all are focusing on IT—unlike the U.S."
Otellini mentions a recent poll in the San Jose Mercury News, in which people were asked what they wanted for Christmas.
"PCs trumped happiness and peace. That's good news for us."
On the effect of the housing slump in the U.S., which is dragging down Intel's important customers in the finance industry:
"In the last couple of economic dips, IT spending accelerated." (He says the dot-com bust was an exception.) "This is particularly true in the finance industry, where they run on powerful servers and trading algorithms. As before, they'll use this period to get an edge on their competitors." He adds that Intel sold a record number of server chips in the third quarter. "And consumers don't buy server chips."
On the sky-high valuations for Internet companies:
"As a board member of Google (GOOG), part of me likes that. But when you hear of a Facebook valuation at $15 billion, you wonder how you monetize that. There are a few apps [on Facebook] that have a lot of stickiness, and there's nothing after that.…If Google launches a site tomorrow, what happens to their valuation? The interesting thing about social networks is that one friend leaves and the others follow."
On Intel's push to move more advertising for itself and its partners from traditional media to the Web:
"We're shifting to the Web. It's going to be substantial. It has to do with the way people buy PCs in mature markets. Here, and in Japan and in Western Europe, no one is buying their first PC anymore. They virtually do all their research online. We want to own that space." He refers to "third-party review sites," as well as sites for computer makers and big-box retailers, "where people do comparison shopping."
On Apple's knack for selling top-dollar merchandise:
"My wife and I both have iPhones. My wife came in with a jacket for her phone. She was all excited. It's a flimsy little thing. It cost $39. It probably cost 6¢ to make." He adds that he uses a ThinkPad for work and a MacBook Pro for his personal life, including his personal photos and music.
On the competitive importance of math and science education in the U.S.:
"We have to improve math and science. We finally got Congress to pass the America Competes Act. They passed the law, and now they won't give it any money. You go nuts when you go to Washington on this stuff. Every other country says that this is a No. 1 priority."