Pessimistic Grove Upbeat About Intel
This has been an eventful year for Andy Grove, the chairman of Intel Corp. who was named Time magazine’s man of the year just months before he announced he was stepping down as chief executive.
But eventful doesn’t begin to describe the kind of year it’s been for the company he helped build over the last 30 years. Intel has been rocked by the Asian financial crisis, the exploding popularity of low-cost PCs, an antitrust suit by the federal government, and that’s just for starters. The Santa Clara firm, which for more than a decade has had a near-lock on the PC microprocessor market, also suffered through product delays, lost market share and cut 3,000 jobs.
Grove, 62, is an avowed pessimist, as evidenced by the title of his 1996 book, “Only the Paranoid Survive.” But he remains firmly confident in Intel’s place in the computer industry, and its ability to adapt.
Before speaking at a management conference over the weekend, Grove agreed to an interview with The Times. He declined to address certain issues, including the suit Intel faces by the Federal Trade Commission. But he discussed his management philosophy, Silicon Valley’s recent woes, and the Asia crisis. He also talked at length about low-cost PCs, a surging segment of the market that seems to have blindsided Intel and is bound to cut deeply into the company’s traditionally fat profit margins.
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Q: What will you be talking about Sunday at the Academy of Management conference in San Diego?
A: What I have concocted is a combination of thoughts based on three things. One is my book and the concept of strategic inflection points. The second is . . . why successful companies tend to fail, particularly when assaulted by an upstart, typically with an inferior technology at first. Third, I’m going to tell the story of what we call segment zero: low-cost personal computers, what they did to the industry and how we are managing that.
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Q: Why “segment zero”?
A: Segment zero gets its name from Intel having a long-term approach of segmenting the PC market into four segments: one, two, three and four. Low-cost PCs were sort of an afterthought, segment zero.
More broadly, a segment zero is not even on the map when it starts, which is why it is so insidious. To legitimize it and put it on your map is the first step in dealing with it.
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Q: In your book, you talked about “strategic inflection points,” fundamental shifts that force companies to change the way they do business. When did you realize low-cost PCs were a strategic inflection point?
A: In the spring of ‘97, we looked at the data and we managed to convince ourselves that all we were seeing was a cycle of lower-cost materials and not a trend.
Six months later we reassigned 650 engineers to develop microprocessors for that segment.
[Between those events] the data shot past historical levels. The segment zero broke out of its traditional noise level. There were also customers of ours . . . who suddenly left. . . . The marketplace is a pretty brutal teacher if you listen to it.
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Q: How are you dealing with it?
A: In the last six to nine months we have changed the way we design products for the low-end segment. We no longer re-purpose products developed for the high end. We design products specifically for the low end. We’ve never done that.
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Q: So you feel better about your position in the low-end market now?
A: Much better. Our second generation of product we’ve oriented to this place is shipping. We have a product road map that extends into the year 2000. We have won back a number of [customers] we had lost.
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Q: Still, can Intel afford the implications of low-cost PCs: lower margins, reduced revenue, etc.?
A: You cannot afford not to. It’s part of the PC market. We supply it like we supply every other segment. We have to deal with the cost implications of that. Some of the restructuring and factory alignments are part of us dealing with those cost implications.
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Q: In recent months, Intel has had job cuts, National Semiconductor has had layoffs, Hewlett-Packard ordered furloughs, Seagate fired CEO Al Shugart. What is happening in Silicon Valley?
A: In a word, Asia.
Asian consumption of high-tech equipment had been a major factor in the industry’s growth. The Asia Pacific region was pushing toward a third of our sales. That’s now stalled.
The other thing that’s happened is that Taiwan alone represents half of the production of PC industry hardware. Over the last several years Asia has been building capacity at a horrendous rate.
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Q: Is this another strategic inflection point?
A: No, market cycles don’t change the way you conduct business. I consider it extraordinarily fortunate that for 12 years we haven’t had a business cycle. In the previous 20 years we accepted as unquestioned wisdom we would have a recession sweep through the industry every five years. It’s a giant pain and we have to deal with it, but the business remains unchanged, just more competitive.
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Q: IBM has made a series of announcements about how it has developed ways, using copper and other materials, of making its chips 25% to 50% faster. Intel has been pretty quiet about these technologies. Why?
A: I don’t think it is productive for us to unveil silicon technologies an invention at a time. We have led the industry with generation after generation of silicon technology.
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Q: This has been an eventful year for you. Have you had time to reflect?
A: It’s not a matter of time. I think it’s the kiss of death to reflect too much on your contributions. Long-term vision means short-term trouble is going to trip you up.
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Q: How has your role changed since you passed the CEO title on to Craig Barrett?
A: The most important thing I’m doing is taking myself out of legacy activities. From the day I was named operations manager in 1969, we have not had a demand forecast meeting I did not participate in. Last quarter, I got myself out of it and it happened without me.
I’m also trying to spread myself into things that are interesting, where I can learn something, things that are undefined. For the first time, I’ve sat through daylong reviews of areas that had very little to do with microprocessors--the Intel architecture lab, the content group activities. I’m trying to let curiosity and opportunity drive what I do compared to the managerial calendar.
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Q: For years you’ve taught management at Stanford. But you were trained as an engineer. Is management really something you can learn?
A: I’m no good as an engineer. I’m 35 years out of school. Even if I remembered everything I ever knew, it wouldn’t be worth anything. But the hundreds or thousands of problems that you solve and theorems you prove train your mind to think in a particular fashion, a systematic orientation. That doesn’t ever leave you.
What you learn in business school are two things: concepts and frameworks that allow you to look at a number of situations, find what’s common and apply principles.
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Q: Have you revised your management philosophy since your book, “Only the Paranoid Survive,” came out in 1996?
A: No, not really.
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Q: So you’re still paranoid?
A: Oh yes. I’ve not done anything to convince me of the need to change the title or the attitude.
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Q: Any thought of retirement?
A: I’m changing my job in order to continue to be active without having to retire. The steps I’m taking are to allow me to continue to be interested and energetic by not doing the same things.
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Q: So the short answer is no?
A: The short answer is no.
