Exit interview: Retiring Intel chairman Craig Barrett on the industry's unfinished business

Intel chairman Craig Barrett is retiring on May 20. Now 69, he spent more than 35 years at the company and deserves much credit for building it into a manufacturing powerhouse and the world’s biggest chip maker. He succeeded Andy Grove as chief executive in 1998 and passed the CEO job on to Paul Otellini in 2005. As chairman for the past four years, he has traveled the world meeting with heads of state about technology policy and delved into such issues as improving education, alleviating poverty via technology, and getting the nation to be more competitive and spend more on research and development. I caught up with him by phone yesterday to get some parting thoughts on a wide range of subjects, including Intel’s legal wars with Nvidia and Advanced Micro Devices, and whether there’s any chance he might go into politics.

VB: You put in 35 years at Intel. What do you remember most about your early years?

CB: I remember that when I started in 1974, we were doing about $50 million a year in sales. Today, we do about $100 million a day. That’s the biggest change. The reason I left Stanford University to go to Intel was that the semiconductor industry was the best vehicle to take technology into the market as fast as possible. (Barrett pictured at Stanford left.) Today’s invention was tomorrow’s product. In the steel industry, it took 10 years to get an innovation into the market. What I have enjoyed is that we have continued to stay at the leading edge of technology. We turn R&D almost immediately into production and products that impact our lives. When Intel started, it was clearly a high-tech company with the talent of creative people like Robert Noyce, Gordon Moore, Ted Hoff and all of the gang that invented the early products. They dreamed up new technologies, but it wasn’t until we got the Japanese competition in the mi-1980s [that] we figured out how to combine technology with manufacturing and exist as a manufacturing company, not just a technology company.

VB: What got you on the path to be noticed by Andy Grove (pictured, left) and others that led you to the path of becoming chief executive?

CB: Just luck. Come on. You’re at the right place at the right time. I came in with a decent background and education. I got interested in manufacturing because of a job opportunity. We were able to turn the manufacturing around. That caught the eye of Andy and Gordon Moore. We had our successes, but to get to the top, there is always some degree of being at the right place at the right time. An opportunity comes up and you raise your hand. I loved the technology and fell in love with the application of statistics, material science to the manufacturing side of the business. That was a great need at that time.

VB: Andy Grove was legendary for his unique management style. Yours was very different. Did you ever feel like quitting?

CB: (Laughs). Andy and I are very different in style. But that difference was a great complement. Andy has a pretty instantaneous opinion, and you have experienced that at times. I am more of a classic engineer and a data driven guy. Faced with a problem, I wait for the data and analyze the problem. Andy probably gets frustrated with that approach because he wants to take action. That drove me to do my part of the equation a bit faster. It was very complementary.

VB: There is no question that Intel is far bigger than it was in 1998. But the stock price hasn’t done so well. How do you look back on that?

CB: Barring bubbles and recessions, your comment is accurate. The basic issue is the market in the long term is going to value Intel through the P/E ratio (stock price divided by earnings per share). Earnings are going to have to grow to have the stock price grow. We had a fantastic run in the stock price in 1998 and 1999. But it was driven by a P/E ratio that went to 55 or 60. Alan Greenspan described it as unbridled euphoria or something like that.

VB: Irrational exuberance.

CB: And it was unsustainable. We’ve seen a more recent kind of unsustainable irrational exuberance with the real estate bubble that hit the U.S. What drives Intel’s stock price is earnings power. What we tried to do, with the expansion into communications, the expansion into different platforms, expansion into taking the Internet to more places — we’ve always looked for growth opportunities. The company will only see its stock price go up if it has good growth opportunities in the top line and bottom line. That’s the challenge we have faced in the last decade, growing the top and bottom lines. We got hammered in the dotcom bubble as everybody else did. We were reset to a realistic P/E ratio. We got hammered again, then started to recover, and got hammered again more recently with the recession. Everybody understands here that the stock price moves when the bottom line moves.

VB: How do you look back on the dotcom days as your own Monday morning quarterback, when you put $10 billion into a few dozen communications companies and it really didn’t get you much.

CB: We did invest a lot in communications and wireless. It did get us the backbone to the Wi-Fi and Centrino (wireless web-enabled laptops) business. You can’t argue that was a bad investment. It got us the backbone for our WiMax technology. That seems to be picking up around the world. It got us a lot of good infrastructure. It didn’t buy us any instantaneous business. We absolutely stumbled in the handheld business. We bought DSP Communications (for $1.6 billion). We tried to take the ARM architecture into the cell phone business. We had to reset (sell it off). Eventually we [took the] low-power Intel Architecture path into the handheld business. I think in the long term that will give us good capability. We spent $10 billion or so. But we spent it at a time when those prices were inflated and our stock price was inflated. We spent precious little of our market capitalization in terms of investment. It was a time when everybody — I hate to use this phrase — bought high and sold low. You’re supposed to do it the other way around.

VB: It was the funny money days.

CB: It was irrational exuberance. We had a market cap of $300 billion to $400 billion. The $10 billion was a couple of percent of our market cap. So it was not a life-threatening investment. But we also got some good technology. It pushed us toward the platform approach, which was Centrino. That bought us great capability in WiMax and silicon photonics. All of the things we do with the continuous wave laser, the high performance transducers, came out of that time as well.

VB: How do you look back at Itanium [Intel's 64-bit microprocessors]? It didn’t take off as expected. It left an opening for AMD with the Opteron [which was less drastic a change and more power efficient and thus became AMD's first success in server chips]. Did you make mistakes?

CB: At the time, the best computer architects from Hewlett-Packard and Intel got together to create the next-generation big iron architecture, the Itanium family. The thought was it would cascade down to low-end computers because it was believed the 32-bit x86 architecture would run out of gas. You remember we went through the PowerPC alliance against Intel. And x86 kept growing upwards. We beat back PowerPC. We beat back the ACE consortium. We fooled ourselves a little bit because x86 beat back the Itanium challenge. The x86 Xeon servers and Opteron grew up faster into the server space than anyone thought they would. Itanium is profitable today. It’s growing market share in big iron architecture. But it certainly didn’t move down into the PC market as we had anticipated in the early 1990s. It made life difficult for Sun Microsystems. It did replace Precision Architecture at HP. So it is the big iron architecture, still battling with IBM at the very high end.

VB: Then we had this whole shift to low power?

CB: You’ve covered the whole industry long enough to know that we always went full-speed ahead into processing performance. We used as many transistors as we could, switching them as fast as we could. We collectively ran into the power wall. You can’t continue to grow a single, scalar processor with faster transistors without consuming more power. That brought about a shift to an approach with multiple cores on a chip. We still use more transistors on a chip, but we’ll back off on speed. We use multiple cores to get more computing power on one chip. That was the right-hand turn for the industry. You mentioned AMD and when it got to be a little more competitive. That was when Intel canceled a couple of products. We recognized that extending this single-core architecture out with more transistors and faster switching speeds of 3, 4, and 5 gigahertz, wasn’t going to work. It wasn’t going to meet the market need. We took longer to get the next generation out. Now that we are on the multi-core track, we are in a leadership position from an architecture standpoint. We can go from four to eight to 16 cores and up.

VB: Were you surprised that Intel made a comeback?

CB: No. We’ve always had multiple design approaches. We thought we could extend the old Pentium, P6 architecture one more step in the 2004 and 2005 time frame. We finally had to say it’s not going to work. The world is not going to tolerate 150 watts from a desktop chip. We said let’s go in this other direction. There is debate about integrating memory controllers or more cache. Those were two paths. What we tried to do was extend our architecture a bit longer than it was capable. That’s what let the other guy be more competitive. Now we’ve got the next generation out. It’s tough to find anyone who argues that, with our new chip Nehalem, Intel doesn’t have the architectural lead.

VB: You managed to settle the eight-year legal war with AMD in 1995, and you avoided antitrust problems. Now AMD and Nvidia are at loggerheads with Intel again. How do you feel about this caustic environment?

CB: I would much rather see us all compete on the basis of performance and best technology. If you look at the history of our industry, the company that has the best technology improves. When Intel canceled those two chips and AMD had something fill the hole, they gained some market share. Especially in the server space. We continued to do well in laptops and desktops. They did well for a while and they had the best architecture in the server space. I get a little discouraged that people tend to use the courtroom rather than their engineering staffs to compete. I think the industry would be a lot better off if we all agreed that the best technology wins.

VB: What about all of the trouble with the governments around the world that are stepping up their interest in antitrust enforcement against Intel?

CB: Governments have regulatory agencies. Regulatory agencies listen to complaints. And when your competition complains, that’s when regulators react. Obviously, Intel is a visible target because of the strong market position we have. Any of the regulators who have complained about Intel will put the facts on the table. I firmly believe, whether it’s the AMD antitrust lawsuit in the U.S., or elsewhere, I believe our position will prevail. Regulators tend to respond to complaints. Places like the European Union, which has an antitrust policy of protecting competitors rather than consumers, respond to competitors’ complaints. That’s their role. We just want to get all of the facts on the table. It’s a bit discouraging sometimes when the regulators tend to listen to the complaint and not look at all of the facts.

VB: Since becoming chairman in 2005, you focused on policy, education efforts, and developing world programs such as the World Ahead. How do you feel about the progress?

CB: I’m very encouraged by the World Ahead program. The problem is, most of the success with teachers is happening outside the U.S., not inside the U.S. We have been demonstrating the impact of teachers and education outside the U.S. The National Assessment of Educational Progress said last week that for 17-year-olds, we’ve had flat educational performance for four decades. We are not making progress. Every president, every secretary of education says exactly the same words. President Obama and Secretary Duncan have said good words. If they implement them, it’s going to be great. The problem is, every president has said the same about paying for performance, having competition in the education system, having better teachers. Every governor and every president has said that, and we haven’t done a thing about it for four decades. I’m pretty discouraged about K-12 education in the U.S. When I travel the world, to China and India and Latin America and Africa, I see governments that are really excited about improving their competitiveness through education.

VB: And R&D investment?

CB: You may know that the National Academies report called for more investment by government in R&D. You know the Democratic House of Representatives in 2006 used as their rallying cry the America Competes Act. They approved it but didn’t fund it. It has taken the banking crisis, a financial meltdown, to get more investment in R&D in the U.S. through the stimulus bill. It’s kind of perverse. I appreciate that the stimulus package has more funding for research. It’s long overdue. It’s a crime it took a financial crisis for us to do the right thing. We are finally doing it.

VB: What’s the tech industry going to learn from this recession?

CB: I think that we as a country should learn there is no free lunch. You can’t just shuffle money around and think that is improving your economic competitiveness, or improving your standard of living. There are only three things any country can do to improve itself. A good education system. We have a good university system, but our K-12 system is mediocre at best. The second thing is you have to invest in R&D to get new ideas for products and for companies. Basic R&D had been flat for decades. We are putting more money in now, but it’s way late. The third thing is you need the right environment to promote investment in innovation. That’s protecting intellectual property, which is under active debate now with the patent reform. That’s tax rates, where the government is moving in the wrong direction. We have the highest corporate tax rate in the world. Why should anyone invest in the U.S.? The Obama administration floated the idea of taxing foreign holdings of U.S. companies at the highest corporate tax rate — [that's] absolutely going to kill investment. It will make us less competitive. The U.S. has to learn these are the only three levers you have to pull to create high-paying jobs to get the tax base that our government wants to spend on all of the social programs. All that we’re doing so far is figuring out how to spend on the social programs without pulling the three levers in the right direction.

VB: If the World Ahead program, low-cost computers for everyone, and netbooks succeed, doesn’t that hurt the selling prices of Intel’s chips?

CB: Dean, come on. The selling price for computers, memory, microprocessors has been going down for years. Every time we break a barrier, people say it’s going to be a disaster. When we got below $1,000, people said it would be a disaster. Same for $500. You get to netbooks. Maybe everyone will buy a netbook and never buy a computer. Or netbooks could be a new market that expands the total market and could be good for Intel. We innovate to bring the market more value. If we stop and try to protect our butt, if we keep new technology out of the market, then we will be like General Motors building a car no one wants to buy. Netbooks sell for a lower price with Atom chips. But people still buy the high-end Nehalems. It expands the market, and that is good for Intel. We have to stop worrying that the world will crash if we sell Atoms. We have done that forever.

VB: How do you feel about startups in the valley? I don’t see many chip startups.

CB: You should go to universities and see who is graduating in engineering. They are mostly foreign nationals. Ask those kids where they are going. They are going back to India or China. Opportunities are better in their country than our country. You have this environment affecting the startup mentality. You will do startups where the environment is supportive, where the government is supportive, the tax rates are right, and that hasn’t been the case in the U.S. The most troublesome thing is, 60 percent of our graduate students are foreign nationals, and they’re going home. We should be listening to that.

VB: What are you plans now, Craig?

CB: To ride my horse, Dean.

VB: Out at the ranch in Montana?

CB: No, I will stay involved in K-12 education because I think that’s so vitally important. The solutions are the things people have talked about but are afraid to implement. It’s higher expectations, better teachers, paying for performance, competition in education. I want to be a catalyst [to help] those changes take place. I may do graduate teaching of international business at Thunderbird School of Global Management here in Arizona.

VB: There is always politics, right?

CB: No. Dean! You know me! Listen to this interview. I’m saying all of the wrong things to be politically correct. I wouldn’t make it in that space. My role is to be the engineer, look at the problem, and say, let’s be serious. If you want this to change, this is the problem you want to solve. These are the things you have to do. We have to fix the healthcare system. People say we can fix it by insuring 45 million more people. Most don’t want to be insured because they’re young and they know their costs are lower out of pocket than paying for insurance. We spend more of our GDP on healthcare than any other country, and we get worse results. That’s the problem you want to solve. Insuring 45 million people won’t help. That doesn’t begin to touch it. All that’s going to do is add cost to the system. We’ll still have mediocre results by life expectancy, childhood mortality, and incidence of disease. You name it, we suck. All people say is to nationalize healthcare and that will solve the crisis. The biggest problem is to define the problem they are trying to solve. Governments deal with slogans and being politically correct. That’s why I would be terrible at politics. It drives me crazy.

VB: You traveled the world. What’s the singular memory you have about your whole experience?

CB: The best memory of the last three decades is watching technology that came out of the valley and seeing how it has changed people’s lives everywhere. Sometimes we take it for granted in the U.S. When you go to remote Brazil, China, India, Kenya, South Africa, and Russia — you see how technology changes people’s lives. That’s the image I have. A bunch of big technology companies were created in Silicon Valley. But the technology from those companies changed people’s lives around the world. They give a little kid born in Kenya almost the same opportunity as one born in the United States. Nothing that mankind ever did before came close to that. Giving the world’s information to those kids, giving them opportunities with education and healthcare because of technology. Seeing what we as an industry did. That’s the memory I go away with.

Here’s another take on Barrett’s exit in the UK’s Guardian.

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  1. […] Barrett may have ridden off into the sunset (or, more accurately, ridden east to Phoenix) after retiringĀ as Intel chairman in 2009, but he still keeps an eye on things out here. On Thursday, he’ll […]