Standing by Intel's CEO
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| Under Otellini, Intel has beaten back competitors and gotten more efficient. Photo: Intel |
If you're the CEO of Intel, you don't typically worry about whether the business will make money. In the average day last year, the Silicon Valley giant sold $103 million worth of chips and generated $30 million in cash. Nice work if you can get it, right?
Suddenly, it's not so nice.
Don't look now, but the global economic meltdown is burning a hole in Intel's (INTC) business model. This week CEO Paul Otellini announced that last quarter's profits tumbled 90 percent to $234 million, and reportedly told employees that he couldn't rule out the possibility that Intel might actually lose money in the current quarter – it would be the first time that's happened in more than 20 years. (Intel doesn't comment on its internal communications.)
When things get this bad, investors justifiably ask whether it's time to give the CEO the boot. The answer in Intel's case? Not yet.
If Intel's problems were rooted in bad management, it would be time for Otellini to go. But based on the hand he was dealt, the guy's actually done a pretty good job. Since he took the reins as CEO, Otellini has cut about 20,000 workers from the payroll, pummeled rival Advanced Micro Devices (AMD), and invested in new forays into chips for smartphones and graphics applications. Thanks to efficiency gains on his watch, Intel makes chips twice as quickly as before, which means leaner inventory.
Not everything is going well. Intel's flash memory business still looks iffy, its investment in wireless pioneer Clearwire (CLWR) just took a $1 billion writedown, and Otellini's management team just blew sales forecasts by a mile – twice. But overall, Intel is a more tightly run ship than when Otellini took charge.
So why is Intel faring so much worse than high-profile tech companies like Apple (AAPL), Microsoft (MSFT) and IBM (IBM)? For starters, Intel constantly spends billions of dollars on cutting-edge manufacturing facilities, an investment that normally pays off but looks like a burden during tough times. These factories are a part of Intel's DNA, the lifeblood of the PC industry, and they can't just be shut down during a recession. Yes, Intel could build them more slowly, but that would risk leaving an opening for competitors to leap ahead when the economy improves.
Intel's business is different from the other tech bellwethers in some other key ways. When it comes to PCs, Apple caters to a niche at the high end of the consumer business, while Intel serves pretty much the whole market – so though Apple's upstart Mac business can swim against the tide, the Intel juggernaut can't. Microsoft's PC-related businesses are suffering too, but the software maker's results don't look as bad as Intel's because its costs are inherently lower.
IBM is a different story. Big Blue doesn't have much skin in the declining PC game at all anymore; its admirable results are instead fueled by software sales and I.T. outsourcing contracts. It's probably fairer to measure Intel next to folks like AMD and Seagate (STX), which are doing much worse. (Not surprisingly, both AMD and Seagate recently got new CEOs.)
None of this means Otellini is off the hook. Apple, Microsoft and IBM are all better diversified than Intel, a problem he must address pronto. (Today, Intel has too many eggs in the PC basket; it needs to grow its new Atom chip into a solution for phones.) He probably can't keep throwing cash at Clearwire and the flash business unless they start making money. And he will certainly have to regain Wall Street's trust after wildly misjudging the severity of this economic crisis.
But Otellini should get a shot at pulling things together. You can't tell by the stock price, but he's done some good stuff.
I don't see how some people say that Paul should get the boot or not. You never worked with him side by side, so how would you know? I am embarassed to read such articles and comments, but until you know the person in face you have no right to judge him based on PR which most of the times are incorrect!
I do not find Paul evil, mean or to be breaking the rules. I also do not find HR department to suck and where did you find fascism? I'm confused. If you're having personal issues that you didn't get hired or you got laid off you have no right to BS your way, learn how to control yourself and deal with issues. No need to get steam off on people who did not deserve it!
I think Intel did the best they could looking at today's crisis. I am impressed that they lasted so long as other companies in Bay Area were failing (Google, IBM, Yahoo, HP, Cisco, etc). If you're saying Paul needs to give up his position, you need to give a clear and justified reasoning as the ones that were given are dumb. He is a person like any of us,…and it is disrespectful for me to hear that people can actually be so angry at one another. Shame on you!
I have worked at Intel for over 25 years and am still there. No, its not the same as years ago. What is? It's not better. Somethings in life are. One thing constant is change, including the leaders at all levels. The root culture of Intel is to out design, out develop and be the best in class in production. Yes, that means lots of spending, especially when the competition is down. As long as any leader continues to drive the employees to this belief, we will maintain their lead.
At what cost and for how long? Those are serious questions. How hard can you drive employees before they start to resist the suggested culture?
I think Craigs upcoming retirement and newly named successor will make bigger changes to Intel than Paul's take over did.
Personally, I liked the Andy years best. That's back when you did not have to remind employess to have "tongue in cheek" fun. Pauls years have definitly been the most difficult and unenjoyable. Did Paul inherit it? Most US big companies out there are hurting their employees more than Intel currently is.
i had worked in intel for about 15 years, i will say most of the old guards – engineers working in the fab. are so disappointed at PSO and wanted him to go. Only the sales and marketing guys want him to stay. In such a tough year, Intel just had its annual sales conference in Las Vegas – thousands of people flew in and stayed in Bellagio for a week. How do they explain to the shareholders, and the people that got laid off?
Also, I don't think this article is objective, it is actually biased. and they are limiting the comments here.
Paul is egoistical and does not connect with the field and sales teams. What all companies need now is a detailed operational driven CEO who can track the numbers on a weekly basis. Like a Mark Hurd. Paul is no Mark Hurd, mainly due to his false ego.
Did Intel really make only $234 million in Q4?? Intel in fact made $1.3 billion in Q4. Thats money in the bank!!
Thanks to accounting rules, $1 billion in paper losses stemming from Clearwire investment has to be reflected in the Q4 results. Clearwire valuation drop is in line with the rest of the Telecom Index and would recover with the rest of the industry. Until Intel divests the Clearwire investment, the paper losses don't materialize.
So, all this has nothing to do with the health of the PC industry and not as ominous as the media tries to portray.
As for Fortune's reporting, I hope Fortune returns to its roots as an objective business weekly and no go down this path of becoming yet another business tabloid (like Forbes!!).
The problem with Intel is the second tier management. I worked for Intel for 10+ years and for the last 2 years had exposure to Tier2 management. Everybody has their own interets in mind. They bend over backwards to please upper level management. Extremely self centric bunch of folks.
PO is the biggest evil that could have happened to Intel and the BROADER COMMUNITY – unfair biz practices is the name of the game he has been following for years now. Their HR department sucks – Fascism at its best.
I worked at Intel for 10+ years and PSO is not the right leader. Lack of integrity would be my #1 issue.
Agreed on the main subjects. Way too quick to blame any leadership that is dealing with the overall economic situation. The more important point made here is: diversification. This is clearly a challenge I would like to think Intel can address (in that I'm a long term shareholder). This assists IBM and would definitely be a plus for Intel if they could identify the appropriate ways to expand their technologies.
Otellini is the best thing that has happended to Intel. Yes there will always be competition/economic issues to steer around some with long term solutions needed, certainly longer then they two or years he has been in place but thank goodness is is steering the Intel ship.
Overall, he's done a pretty good job of getting Intel on the right track. In fact, it doesn't really make any sense to compare Intel to Apple, MS or IBM – they are simply very different business models. As for diversification; Intel has moved aggressively into the netbook space – probably a good move considering only 1 billion of the earths 6 billion population have a pc – netbooks become an affordable solution for some of these people. And today, even the handset/phone business is showing signs of slowing growth. Intel is also moving into the grahphics chip business, which should leverage their expertise in chip design and manufacturing. In fact, the only foolish thing I believe they've done is screw around with trying to write consumer linux apps for netbooks. Given we're in a global recession, I think Otellini has managed quite well.
Otellini is a savvy guy. The problems are with the broader economy, not with Intel per se. Changing horses midstream when the problem is with the stream and not the horse seems unwise.
Efficiency that came at the price of 70 hour work weeks, scuttled R&D, layoffs (nearly 2500 in Santa Clara last year), offshoring jobs and technology and beating AMD by making the processor a commodity product. He's squeezed Intel until its poised to fracture.
I worked for Intel for 8 years (laid-off in January '08). During my last 4 years there, the company moved me, involuntarily, into a job I had no experience in, and that was far removed from my core skillset. I was then laid-off because my skillset was mis-matched with my position. Despite strongly emphasizing with my management my need for training, I was given none. I feel like I was set up by the company and then dumped. The corporation itself is fine to work for. The benefits were good, my salary was ok (although I do feel I was not being paid the market rate for my position). My departing impressions of the company are that it:
1. Tries to look good publicly by laying people off and supposedly creating more efficiencies in order to boost stock price (which has languished at the bottom since 2001).
2. Has senior management in IT that does a lot of shuffling of personnel in various re-orgs, but protects it's "good 'ol boy" friends (and I know of one senior manager who was rewarded with a Vice Presidency in the Corporation after exporting hundreds of jobs to Costa Rica).
3. Has a lot of people in Exempt positions who are really good at looking like they are getting things done, but are really just big wind-bags.
4. Treats rank-and-file employees like a "Human" resource.
Intel has managed to sour me on a career field I thought I would work to retirement in (IT). I am still paying for tuition to get into this field and have already been booted out of it by a company that cares more about trying to increase its stock price than taking care of its main resource, people.