Intel’s Long Horizons
Few captains of industry can lay claim to the kind of character-building youth experienced by Andrew S. Grove, a founder and currently chairman of Intel Corp. It was an upbringing few would envy.
A Hungarian Jew born in Budapest in 1936, Grove hid from and resisted two occupying armies--the Nazis during World War II, then the Soviets in 1956--before escaping to the United States and starting his life over.
Gaining a ferocious determination from his traumatic beginnings, Grove rose to play a giant’s role in American business, building Intel into the dominant maker of personal computer brains--the microprocessor--with sales last year of $26.3 billion and earnings of $6.1 billion. The company’s shares have gained 2,737% since 1989.
Along the way, Grove earned a PhD from UC Berkeley and won several patents related to microprocessor design. Among his many honors, he was named “Man of the Year” by Time magazine in 1997.
Grove, who served as Intel’s chief executive from 1987 to 1997, has written four books. Many industry watchers consider the most recent effort, “Only the Paranoid Survive,” an incisive view of management in an era of rapid change.
In an interview at Intel’s offices, Grove reflected on the challenges for investors in the Internet age and on the changes facing his own company.
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Question: Your book talks about “strategic inflection points”--times, as in the emergence of the Internet economy, when new conditions force businesses to adapt for greater success or to fail. How can investors best understand and anticipate opportunities in such volatile periods?
Answer: I tend to look at longer-term horizons and try to surmise the mechanisms that will build an emerging institution that is likely to earn its keep beyond the day’s market activities or the week’s market activities.
There is quite a lot of gibberish, in my opinion, being written today that the old rules don’t work and there are new rules. At the end of the day, the old rules will be what determine which institutions survive, because you can’t make a lasting institution out of selling your own shares. The only way you can make a lasting institution is by generating enough profits and cash flow so you can reinvest on the lasting base in the business.
I would tend to look for companies that have the indication of [that kind of] genetic makeup and that value set.
Q: You are clearly referring to the anti-gravity act being put on by many of the Internet start-ups with huge stock valuations. If these companies have little institutional history, how can investors appraise whether they are going to survive for long?
A: Even in the early stages, you can begin to see companies that have a long-term view of their mission, their destiny...*. These changes in restructuring have happened from time to time. The PC industry has done it within the last couple of decades. But the rate of change with which this is happening today is much faster. So the next characteristic that you are going to have to look for and judge is execution skills for this fast-changing world.
Q: Intel and Microsoft, the two most successful high-tech companies by many measures, both exhibit an ability to change quickly and to adopt new strategies.
A: Recognizing change is necessary but not enough. When you adapt to change you still have to build stocks [of products], you still have to deliver stuff, you still have to hire people, you have to train them, you have to deploy them...*. Intel has been a pretty good execution machine and so has Microsoft. We all have our problems, but we always dug ourselves out of our own problems in a fairly efficient way.
Q: Intel is one of the leading venture capitalists in Silicon Valley. Unlike Microsoft, which tends to acquire companies and move their technologies into the Windows fold, Intel primarily seeds the market for technologies that serve the goal of generating demand for your high-speed processors. Why not also use your investments to vastly increase Intel’s financial resources?
A: For us to find investment opportunities, vet them as investment opportunities and check them against our long strategic desires as you correctly described, is a lot of work. While we can build up the capacity of that organization to do work like this fairly rapidly, it is still finite.
The way we can ruin this golden goose that has been laying quite a number of golden eggs, is to require it to do more than it can do or require it to grow faster than it can...*. It is a balancing act on that one. [We have] probably have erred more on the conservative end.
Probably equally important is the fact that these companies have exposed us to the Internet-applications wave pretty early in the game...*. The fact that we have tentacles in that world and our people have contacts with that world has helped us, guided us in the adaptation.
Q: So these investments are as much as anything an intelligence-gathering device?
A: An intelligence-gathering device about the dynamics of the new market. [The investments] are almost solely in applications-related companies. We are not in the application business. We seed the application business exactly as you said because we dominate [PC] microprocessors.
How we shape those microprocessors, how we market them, how we price them, how we manufacture them, how we distribute them--all of that depends on the kind of market environment. We learn more about the market environment by our involvement in those companies.
Q: Intel is moving strongly into networking applications for homes up through medium-sized businesses. Does this foreshadow a transition to becoming more of a networking company than perhaps even a chip company?
A: You are on a good track, but I have to fight some of the words in there because the words are not right. The sense of the direction is right...*.
Our old-fashioned mission statement was that we want to be the preeminent building-block company for the computing and communications industries. We have had that for most of this decade.
In terms of the Internet being a huge shaping force for both the computing and the communications industry, I would reshape that [mission statement] to say that ... we want Intel silicon to be at as many places in that network as we possibly can.
Q: In your book you were quite skeptical about the idea that specialized Internet appliances, such as set-top boxes and hand-held computers, would gradually supplant the PC as the primary computing devices. Given the Internet’s development and Intel’s investment in microprocessors that will power those kinds of devices, have you altered your views?
A: The biggest thing that has happened in our part of the industry is the acceleration of price drops for personal computers. In this universe the PC is becoming the most popular appliance by far, maybe by a hundredfold relative to the next-most-popular appliance...*. The PC is metamorphosing into that [less-expensive and more simple] appliance first and foremost.
The next-most-popular device in the appliance category is the Palm Pilot, which is now in the over-a-million category. Compared to 100 million PCs, it is very small, two orders of magnitude less, but it is a decent-sized activity. So we are chasing after every one of these designs because we missed the Palm Pilot, and we don’t want to miss the next Palm Pilot.
Q: You’ve taken a step back with Craig Barrett running the company as CEO. Will you use your extra time to work on a new book?
A: Not yet. Sometime in the future maybe. It isn’t going to be a management book. I don’t think I will ever write another management book.
Q: Why is that?
A: Ahh. I have written three of them. It gets to the point that with some of these people who have written multiple books, you can’t tell one book from the other. I don’t want to get caught in that.
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At the Conference
Intel Chairman Andy Grove will be a featured speaker on the opening day of The Times’ 1999 Investment Strategies Conference, to be held May 22-23 at the Los Angeles Convention Center. For registration information, call (800) 350-3211 or visit https://www.latimes.com/isc. Grove invites reader questions in advance, though he will be able to address only a sampling. To submit a question for consideration, e-mail business@latimes.com and put “ISC Questions” in the subject field, or write to ISC Questions, c/o Kathleen Brady, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Questions must be received by May 18. *
Charles Piller writes the Innovation column featured in The Times’ technology-themed Business section on Mondays. He can be reached by e-mail at charles.piller@latimes.com, or by mail at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
