For someone who stepped down from the CEO's job more than five years ago, Intel Corp. Chairman Andrew S. Grove still has his finger on the pulse of technology. Some 35 years after co-founding the Silicon Valley chipmaker, Grove, who also lectures at Stanford University's Graduate School of Business, believes information technology is far from mature. Here are excerpts from interviews conducted in January and July by Silicon Valley Bureau Chief Robert D. Hof:
Signs of a tech turnaround are mixed. What's going on?
We ended last year with an all-time record in industry PC microprocessor shipments. We ended the year with 1% revenue growth. So what does that say? People are investing in information technology. Somebody's buying those units, and somebody's deploying those units. Revenues don't show this because of price cuts. There's going to be some period of router shipments, PC shipments, server shipments, notebook shipments, that is not going to show any corresponding revenue growth. That has to take place to build a platform from which a financial recovery can come. I think it's happening. We simply have to go through a period like this.
What will drive the recovery?
There are three legs for a unit recovery. One is Asia-Pacific, especially the emerging economies. A disproportionate part of the unit growth comes from developing economies seeing that competitiveness requires IT infrastructure and IT deployment. They are taking advantage of the [low] pricing to catch up.
The second element, which I think is going to be the most fundamental, is Internet traffic. It's not doubling every 100 days, the way people once said, but it's doubling every year. There's a long way to go before that's going to require laying more fiber. But all that fiber that is buried in the ground is not lit [operational]. So long before we need to dig more trenches, we're going to need to light more fiber, which is going to require an incredible amount of electronics.
The third leg is the applications driving all that traffic. At Christmastime, e-commerce vendors outgrew their physical counterparts by three or four times or more. E-commerce is happening the way all the hype said it would. Internet deployment is happening. Broadband is happening. Everything we ever said about the Internet is happening. Now, if this goes on for some period of time, it is going to use up the capacity. I don't know how long. But when it does, revenue growth will follow.
Some think tech is such a large portion of the economy that it will never again grow at its historic 10% annual level. Are they right?
I don't agree with that characterization. We're going to have a five-year period -- 2000 to 2005 -- when there's no way revenue is going to grow anything like it did in 1995 to 2000. We expanded physical capacity to maintain an unsustainably high growth rate in 1995 to 2000. We have to balance that out with a five-year period that is below the trend line by the same amount that we were above it. Both periods average out to a growth rate that's probably not as high as we thought in 1995 to 2000, but it's higher than 2000 to 2005.
Nicholas Carr's recent Harvard Business Review article says: "IT Doesn't Matter." Is information technology so pervasive that it no longer offers companies a competitive advantage?
In any field, you can find segments that are close to maturation and draw a conclusion that the field is homogeneous. Carr is saying commercial-transaction processing in the U.S. and some parts of Europe has reached the top parts of an S-curve. But instead of talking about that segment, he put a provocative spin on it -- that information technology doesn't matter -- and suddenly the statement is grossly wrong. It couldn't be further from the truth.
It's like saying: "I have an old three-speed bike, and Lance Armstrong has a bike. So why should he have a competitive advantage?" Besides, it is outside of traditional commercial-transaction processing where info tech will have the greatest impact in the future.
Is Carr correct that commercial-transaction processing in the U.S. and parts of Europe is indeed mature?
Sure. Transaction-processing software or database software Revision 8 does not change from Revision 7 nearly as much as Revision 2 did from Revision 1. But that's not [all] information technology. Ask yourself: Is digital distribution of music saturating? If it is saturating, what is all the hullabaloo about? Is digital electronics applied to warfare saturating? Then what is it that we witnessed a few months ago? You're talking about different parts of information technology.
Also, not even commercial-transaction processing is uniformly used. Health care, an industrial segment that represents 15% of GDP, way underuses information processing. And a lot of the problems with health care would be improved if it used it to the same extent banks do. It doesn't.
Why has Carr's article struck such a nerve?
Because we are in the third year of a recession, and people are anguishing. There is absolutely no strategic agreement on the next questions: Is the industry going to consolidate, or not? Is it heading toward outsourcing, or not? In semiconductors, is it heading toward integrated manufacturing or foundries? The industry is in terrible turmoil. People are going in all different directions trying to find the magic answer. Somebody comes in and says: "There's no magic answer because the whole industry's dead." But the industry is not dead.
How is IT evolving beyond traditional business computing?
A digital telephone call is information technology. MP3 players are information technology. Finding Nemo is information technology. TiVo (TIVO ) is information technology. Cell-phone infrastructure and wireless technology are information technology. Now, what part of that is saturated?
What is all that leading to?
The world is being turned into a digital representation. Distance means nothing if you have a digital infrastructure. Anything digital is borderless. You cannot put obstacles in the way of digital technology flowing everywhere. Everything that has an information element can be digital, increasingly inexpensively.
That leads to wholesale personalization of everything. MP3 players are personalization. Digital delivery allows you to make your own playlist. Same thing is happening in television, with personal video recorders like TiVo. The same thing is beginning in medicine, with diagnostics and personalization of treatment. This is information technology. And I submit to you, it is very, very early. We can't even glimpse IT's potential in changing the way people work and live.
Given these opportunities, why are so many people in the tech industry still so negative?
One, people are in a s---ty mood. We are dealing with people whose stock prices are down 90%, who went from genius to bum to unemployed in a handful of quarters. Both they and their observers and their investors find it easier to accept that it is due to some cosmic trend, such as "information technology is tired and spent," than to others. Two, I think the media's uncritical acceptance of hype the past several years is flipping over to equally uncritical acceptance of the doom-and-gloom. There are huge, huge things going on, and we are too myopic to notice.
Are there threats to a robust tech recovery?
Oh, a million threats. Liquidity: These things cost money. There is lack of confidence in technology, causing people to sit on 1 1/2% bonds in favor of investing in new technologies. Three years ago, when interest rates were substantially higher, people were pouring money into startups, which ran the money down the drain to ad agencies and to brand recognition and eyeball-building.
Today, wonderful ideas have a hard time getting funding. Technology is unstoppable -- but it's delayable.
Is this a problem for the U.S.?
One of the reasons we are doing as well as we have is that so much of our product is being consumed and deployed in emerging economies. [But] we are letting our infrastructure age. They are rapidly catching up.
Will future innovation increasingly come from outside Silicon Valley and the U.S.?
Probably. In the best case, we are going to have a leading role, but with less distance between us and other regions, countries, societies. In the worst case, that leadership could dissipate. Digital technologies close the gap.
Let me just take one example that is absolutely frustrating to me. The U.S., for economic as well as scientific reasons, has been a magnet for the best and the brightest in the world. It is less of a magnet today, because we are accelerating the shutdown of the magnet by making immigration increasingly difficult. Picture today's immigration policies applied to the years before and during World War II, and what would have happened if foreign scientists were not allowed to work in the U.S.?
I don't try to paint a cataclysmic scenario that in short order we are going to lose our lead. But we are losing the lead every day. The distance between us and the rest of the world is eroding anyway, because knowledge doesn't stay contained and people don't stay contained and the opportunities are not forever regional. But we are helping that trend. That is not the thing to do for the decades to come.
What new technology might boost tech's fortunes once again?
I'm not predicting a miraculous technology that is going to be a must-have product. An alternative is an easier-to-deploy product. For example, wireless everything is eliminating the most labor-intensive and most cumbersome part of electronics, which is cabling. What has held back broadband has not been electronics, it has been cabling. What has held back things like home networking, living rooms with computing equipment connected to consumer electronics, is cabling.
Everywhere you look, there's a rat's nest of wires, with lots of maintenance. All that labor can be reduced by reuse of local spectrum. So Wi-Fi is one major example of that. It could be the last mile for broadband.
Is innovation continuing, or has the downturn slowed it significantly?
Technology is like a river. The rate of change in technology is as much today as any time in my experience.