InformationWeek

January 17, 2000

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Inside Intel:
Inteview With Craig Barrett, CEO Of Intel

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s Intel sets out to make its brand as synonymous with networks and hosted services as it is with PCs, president and CEO Craig Barrett shared his thoughts on the future at a meeting with InformationWeek editors at the company's Santa Clara, Calif., headquarters.

IW: What's driving this ambitious diversification plan?

Barrett: The major issue that we face is growth. We've had a wonderful 10 years on the back of the PC, and that's still a good business for us. But what we're trying to do is put new growth areas in place. The PC was the dominant force in the last decade; the Internet is clearly the dominant force in the forthcoming decade. So we're hitching to that star and riding it as fast as we can.

IW: Why is Intel looking to increase its presence as a vendor of networking hardware?

Barrett: The communications industry is clearly on a track to do what the computer industry did in the last 15 years. It will move away from proprietary, vertical stacks to common building blocks and open interfaces. We want to be a common building block supplier in that space. That's everything from silicon in network switches and hubs and routers and communications equipment to silicon in cell phones.

IW: And why hosted services?

Barrett: We think that there's a huge opportunity as people outsource their E-business applications and such. Not everyone is going to want to do that in-house. In fact, very few people are going to want to do that in-house. And we think we've got a good shot at being one of the leaders in that space.

IW: Will all of this come at the expense of your microprocessor business?

Barrett: Our position is that we want to continue to grow our core business while we grow these new businesses. We have this $20 billion thing that's lovingly described as the largest single-cell organism in the world, and that's our 32-bit IA business. It's still the heart of Intel, and will be for several years, just because it's so big and so powerful.
That's clearly still the major portion of our business. My personal opinion is that the PC market will continue to grow and we can continue to grow that core business. Having said that, from 1990 through 1998, chip sales had a 35% compound annual growth rate. It's not going to do that anymore. We need to grow in areas other than that core business.

IW: What portion of your overall revenues do you expect the new businesses to account for in the future?

Barrett: We haven't got a clue. But what I tell the IA guys is that their charter is to keep growing to keep the other side a small percentage of our business, and I tell the other side to do the same thing. [As for the services business], I expect this will be a multibillion-dollar business for us eventually. The communications silicon will be a multibillion-dollar business, and servers, how ever you want to cut that market, is already a multibillion-dollar business but will grow faster than the desktop processor business.

IW: To what extent are you counting on your traditional business to support your new businesses?

Barrett: We've been venturing into new areas by using some of the cash flow off the IA business. If our cash flow, which runs at $2 billion a quarter, dried up and blew away, that could impact us. But I don't think anyone is forecasting that to happen. We're kind of old fashioned in this respect. We're buying things with cash. Most of the acquisitions for purchases made today are made with the somewhat inflated currency called stock.

IW: In terms of marketing the new businesses, is the "Intel Inside" concept transferable?

Barrett: Not so much. It's not even transferable to the other non-IA businesses. "Intel Inside" basically stands for microprocessors in computers. So I wouldn't attempt to expand it to cellular processors or network processors or anything else.

IW: To some extent, you are buying your way into new markets. Will your acquisition strategy continue to be as aggressive going forward?

Barrett: If you look at what are the building blocks in the networking space, they range from local area networks to wide area networks. Across that spectrum there's lots of areas that we need to expand into. There's also potential for follow on to the DSP Communications acquisition in the handheld chipset space. The world is tending to consolidate in those spaces, so what we have to do is consolidate the technologies and capabilities. I can't promise you we'll spend as much this year as last, but we're not going to go cold turkey and stop. However, I'm certainly not going to wave a list of companies that we're thinking of buying in front of the world so that they can raise their price. Let's just say that as we move into these new areas, it behooves us to be just as aggressive as everybody else.

IW: Some of these new markets you are entering, particularly hosted services, will be highly competitive. In the past, you've been used to dominating your core market. How will you adapt to a more competitive field?

Barrett: We have lots of competition in the microprocessor space. When you talk about servers, there's Sun and the RISC guys. We've got AMD and Via in the low-end space, so we're used to competition. We've been in the memory business, we were in the DRAM business, now we're in the Flash business. If you want a brutally competitive space to be in the last several years, the memory business has been just that. Yet we emerged from that as the market-share and technology leader. Folks here know how to be competitive.

IW: Looking ahead, do you envision Intel as being the same kind of company that it is today, or will the new businesses fundamentally change how you operate?

Barrett: We have to be a different kind of company. Through the '90s, we were basically a one-product company as far as most of our revenue, margin, and profit were concerned. Going forward, that processor business still has to be a strong part of us. But we have to grow other businesses independently. The general managers driving our businesses today have to have much more autonomy. That will make a different form of Intel. And if that wasn't enough, the fact that we acquired eight or nine companies this year scattered hither and yon around the world makes us more geographically dispersed. It brings new cultures and attitudes into the company.

IW: Do you need to change the external perception of your company as well?

Barrett: It all translates back to the corporate vision. Our mission statement for years was to be the building-block supplier to the computer industry. Our vision for the future is to be a building-block supplier for the Internet economy, in the same way that people look at us as an integral supplier of standard technology for computers today. So I'd like to expand that. Whether it's computing appliances or network appliances or server appliances, we must become an integral part of the hearts and brains of the new economy. So we have to have the hearts and minds of customers in other areas, which is why we have to work to get the Intel brand prevalent outside of the computer space.

IW: How does Intel plan on growing its networking business--switches, hubs and routers--when we are already seeing a lot of consolidation in that space?

Barrett: We've been in that field for a long time, and we kind of initially targeted not the enterprise space, but the small and medium-size stuff and the home space. And that's where we tend to concentrate the systems part of that business. It's only recently that the Ciscos of the world have come to focus on that part of the business. They were very happy up in the enterprise backbone. So it's not as if we've been attacking them in their domain. I think we've been there longer than they have.

IW: Regarding your data centers, to what extent do you believe businesses will turn to IT providers to manage their infrastructures, and what does that mean for the future of IT departments?

Barrett: Businesses ought to run stuff that they have competency and capabilities in and bring value to. They don't run their own phone companies. But I don't see us being in competition with internal IT departments. As people get further into E-business they will want a solid infrastructure, which means they will want qualified hardware and software people.
But the whole concept of moving your business from a traditional medium over to an Internet medium assumes that the IT organization has to change how it does business, because suddenly all business has to be done consistent with the new medium. The IT organization and the business managers, which previously have been kind of standoffish towards each other, have to work more closely.

IW: What would you guess will be the predominant operating system on Intel processors as its 64-bit chips move into the data center?

Barrett: No one's got a lock on that space. There's a lot of competition. Microsoft is very committed in that space, but I think they have a lot of competition. We'll see whether Windows 2000 solves a lot of the problems about reliability and scalability. I think you'll see on IA-64 six or seven operating systems on it, and those people are committed to being competitive in that space. It's going to be a free-for-all for a while.