Online Extra: Of Apples and BlackBerrys

Intel's chief executive expounds on the risks and potential rewards of organizing the world's largest chipmaker around end-user products over PCs

Intel (INTC ) Chief Executive Paul Otellini last year undertook the most radical remaking of the 36-year-old chipmaker since co-founder Andrew Grove jettisoned Intel's failing memory-chip business in the '80s in favor of microprocessors, the core of PCs and servers. But Otellini's plan to break into products as far afield as cellular phones and handhelds, and such markets as digital health and the digital home, won't be as easy as dominating the PC business, which Intel has done for decades, thanks to its partnership with Microsoft (MSFT ).

Sitting in a hotel conference room in early December after speaking at a leadership conference in San Francisco, Otellini, who has been in the job since May, for the first time outlined some of the historic changes -- and the challenges -- he faces in remaking Intel. The chipmaker is changing its logo, dropping the Pentium brand, and launching a "big bang" of products throughout 2006. Otellini spoke with BusinessWeek Technology Correspondent Cliff Edwards, and a special extended version of their conversation -- available only on BusinessWeek Online -- appears below.

Is it fair to say Intel is exiting the PC era and morphing into something new?

The era we're going into now is one where computing becomes more ubiquitous and more pervasive and has more uses, so computers are going to become tailored. The product lines and markets we're addressing today are all focused on where we think computing is headed in the next four or five years.

Clearly, a lot of what you're focusing on is marketing. Why is that so important?

We are still a technology company. We spend a lot more on R&D than we do on marketing. But to sell technology now, you have to do it in a simpler way. You can't talk about bits and bytes -- you talk about what it does for you.

Some people might think it's crazy to tinker with one of the most widely recognizable brands in the world.

Changing the name of our products goes a long way to put an exclamation point on the design change that's behind them. Is it orthodox to walk away from one of the most recognized brand names in the world? Probably not. I don't think we'll walk away from it overnight. In fact, we will keep it on in a large manner for quite some time. But the new brand at the top, in terms of where we want to drive the product, is going to be focused on [the new brand] Core, Core Duo in particular, which signifies the dual-core nature of it and also the fact that we have a whole new sheriff in town.

You've brought in an outsider, former Samsung marketing whiz Eric Kim, to help lead the marketing changes. Isn't it unusual for Intel to bring in outsiders at the top ranks?

It's hard to come in from the outside at that level at any company. At Intel, it's traditionally been even harder. But I thought we needed some fresh thinking. This is one of the areas where change is part of the nature of the job.

The fact that Eric is a bigger geek than most of the other people at Intel turned out to be a wonderful blessing. He's a highly trained engineer, knows software in and out, worked Lotus. And he's also an aficionado. He's one of these guys that builds these home theaters himself and connects things up, so he's a great litmus test for how this stuff works.

You're also bringing in key execs in other senior-level positions.

As we move into emerging markets, you tend to buy a more experienced talent base. I felt in Digital Home boss Don [McDonald's] case that it was particularly important to get people who had worked in consumer electronics and content before. Those kind of skill sets didn't exist inside Intel.

In Mobility Group boss Sean [Maloney's] case, wireless technologies is an area where we're still growing and learning. Those guys are like living gods, and you want to get the best and the brightest.

These are some pretty cherished institutions you're dropping -- the Pentium brand, the dropped "e" in the logo. How much trepidation did you feel?

When Eric asked me if I had any sacred cows, I said no. He asked, what around the dropped "e"? And I said if it makes sense, it's time to do it. He was given pretty free rein to change.

And when I saw [the new logo], it just jumped out at me. It reflected that change, where we want to go. There's a feeling of movement around [the new logo], and the tag line "Leap Ahead" certainly reiterates that.

How much of this is in response to the competition you face? Advanced Micro Devices (AMD ) is stronger, and Texas Instruments (TXN ) is pursuing its own digital-home strategy.

We were certainly cognizant of our competition when we constructed [out new strategy], but I think it's sustainable from both a competitive and a market perspective. At the end of the day, the market is what drives our business model.

Tell me about the Apple (AAPL ) relationship. You struck the deal in June for them to use Intel chips, which was something of a coup. What does that mean for Intel?

At the end of the day, we live to sell chips. First and foremost, it's market-expanding for us. Secondly, as I said at the developers' forum, the thing that Apple really brings to the Intel family of customers is their innovation. They [have an] ability to not just mix hardware and software, which is unique, but also to drop software upgrades rather frequently to take advantage of hardware changes.

I think what [Apple CEO] Steve [Jobs] said at the forum is they've dropped five releases of the operating system in the last four years. That alone is very appealing. [When it comes to design], they are a front-runner -- people copy some of their design elements. I believe as they start taking advantage of some of our lower-power will drive a trend toward smaller, cheaper, cooler.

How hard was all this change for you as a lifelong Intel man?

I'm quite convinced this direction is the right thing for our company and, to some extent, the industry. This really is a natural evolution of not where just Moore's Law takes us, but also where computing has to go. This is the right model. Now, it's just a matter of playing it out.

What's your slogan going to be? Andy Grove, of course, will be known forever for "Only the Paranoid Survive."

He wrote that after he was in the job five or six years. [Otellini laughs.] Come back to me then.

Which technologies, platforms, most excite you personally?

I actually think Viiv is a world changer. Independent of the hardware as it evolves, it's DRM-agnostic, but it protects everything. It allows you to move things in a free fashion, but still maintain the desire of the content owners to get paid for what they do. It will change the business models of entertainment and theaters and Hollywood, and it will be for the benefit of consumers.

Edited by Patricia O'Connell

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