CEO Craig Barrett had a rocky start, succeeding the legendary Andy Grove. But smart bets during the downturn have left the company in great shape to remain the leader in microchip technology
Barrett has a year left to finish remaking Intel—and his own legacy
By Brad Stone
Newsweek
May 17 issue - The water-rocket demonstration last month at the SMK Padang Tembak high school in Kuala Lumpur combined three of Craig Barrett's passions: science, technology and education. The students were using the Web to learn how to launch water rockets—inverted bottles of water that are pumped full of air until they bow to Newton, vent the H2O and shoot skyward. Even on a grueling six-city, five-day tour of Asia, the CEO of tech giant Intel wasn't going to miss that bit of geeky fun. Surrounded on a hot afternoon by necktie-wearing boys and girls in traditional Islamic headdress, Barrett got into it, stuffing his tie inside his starched white shirt to help crank the hand pumps. "The first one we launched went kind of horizontal and banged into the second story of the school," Barrett recalls. "The second one went way up, but came down and punched a little hole in the corrugated roof."
advertisement
A year ago that scene might have unflatteringly symbolized Barrett's tenure as chief of Intel. Here was a man who had the impossible task in 1998 of succeeding Andy Grove, an American corporate icon to rival Jack Welch; if Silicon Valley had a Mount Rushmore, Grove's image would be among those chiseled into it. Anyone following Grove would have a challenge, but the times conspired to make the situation even more difficult. Under Barrett's watch and as a result of some of his own decisions, Intel was ravaged by the tech crash and undermined by the company's own extensive investments in dot-coms and forays into new ventures. The microprocessor behemoth makes the chips that power eight out of 10 PCs, but that wasn't enough to ensure fiscal health. Between November 2000 and January 2003, Intel's stock price plunged by two thirds and the press and pundits piled on, wondering if the better days of a Valley legend were behind it.
Now, though, that gloomy talk has washed away with the memories of so many of those failed dot-com business models. During the downturn, Barrett invested in Intel's manufacturing plants and steered the company back to basics—a focus on making silicon chips, the brains of all digital gadgets. With a revived growth rate of 13 percent last quarter, and a stock price up by 54 percent since the start of '03, Intel is reaping the dividends. An old company seems alive again, and Barrett's goal is to boost that growth rate into the high teens, which he says would restore Intel as a "high-growth, high-tech" company.
A noticeably warmer Barrett—once criticized for brusqueness with the press—talks enthusiastically about a future in which the company strengthens its presence in developing countries and pushes into new markets like making processors for cell phones and network components. Tall and fit, Barrett is also beginning to think about a personal change: a year from —now he'll turn 65, the mandatory retirement age at Intel, and he will most likely be succeeded by president Paul Otellini. The impending transition invites inevitable questions about how Barrett's tenure as CEO will be remembered—and compared with the three previous CEOs, each one pivotal in Intel's glorious past.
The comparisons never favored Barrett, and he knows it. Intel cofounder Bob Noyce was a pioneer of Silicon Valley's business community in the 1950s, and the coinventor of the integrated chip, the ancestor to today's microprocessor. Gordon Moore, who followed Noyce as CEO in 1975, made the famous prediction that the processing power of a computer chip would double every few years, a canon called Moore's Law that still guides the industry's plans. Then Grove took over in 1987 and spirited Intel through the salad days of the '90s when the Internet blossomed, driving U.S. PC sales up and fueling Intel's 30 percent annual growth rate. "They all cast huge shadows and were all unique characters," says Barrett. "Why even worry about it?"
While his achievements are less heralded, Barrett may have contributed just as much to Intel's current stature as his predecessors. As a track star growing up in the San Francisco Bay Area, Barrett wanted to be a forest ranger but ended up majoring in engineering at Stanford because the university didn't have a forestry department. After graduation, he joined the faculty before leaving for Intel in 1974. Over the next decade, working from offices in Phoenix, he upgraded Intel's worldwide chip-manufacturing network, combining the best of American and Japanese methods. Those assembly and fabrication plants for chips now allow Intel to produce more microprocessors, more efficiently, than any competitor. "Craig has spent 20 years showing me what a crummy job I had done before him," says Grove.
Inside the company, Barrett was known for being demanding. "He was tough to the point of being almost irrational," says Intel CFO Andy Bryant, who reported to Barrett in Phoenix back in the '70s. He's also considered wildly competitive: to win a two-on-two volleyball competition at an Intel sales meeting a few years ago, Barrett secretly brought in professional volleyballer Gabrielle Reece as his teammate. They won in a blowout.
But outside the company, particularly before his succession to CEO, Barrett had been one of the least-acknowledged top Intel executives. Instead of cutting a large public profile in Silicon Valley as Grove did, Barrett preferred to spend more time at his home in Arizona and his vacation hideaway in western Montana; his Cross Bar Ranch has 28,000 acres of largely undeveloped wilderness and a guest facility, Triple Creek, run by his wife, GOP insider Barbara Barrett. Actually, once Barrett became CEO, his lifestyle didn't change all that much. Instead of moving to northern California to be at Intel headquarters, Barrett stuck close to his home in Paradise Valley, Ariz., commuting three days a week and largely shunning the limelight. "I'd rather spend my off-hours with a fly-fishing rod in my hand or riding a horse than being on a talk show," he says.
That reticence didn't serve him well during the worst years of the recent recession. Once U.S. PC sales slowed and Intel's financial health reflected it, the questions about Barrett's strategic vision got louder; one former Intel executive was anonymously quoted in Business Week saying that Grove—and Barrett were "Batman and Robin"—and wondering when Intel would finally call in Batman to the rescue. Internally, Grove was pressing Barrett to be more patient in explaining Intel's strategy to the public. While Grove says Barrett's public demeanor has softened, he's still working on the CEO to lighten up. At a private executive meeting last year, Grove presented Barrett with a framed copy of a positive Wall Street Journal article reporting Intel's first good quarter in three years. Underneath the article, an inscription read fortune cookie wisdom: just imagine what the press would write if you were nice to them.
While he was getting beat up with bad publicity in 2001 and 2002, Barrett was placing the bets that are fueling Intel's resurgence. Since microprocessor technology relentlessly continues to advance according to Moore's Law, the only way to keep up is to upgrade the chip factories every few years. At the depth of the '01 downturn, Barrett funneled $7 billion into RD and retrofitting Intel's plants. The timing of the investment, with revenues down, was vigorously debated inside the company and questioned outside it by those who thought Intel should horde its acorns during a harsh winter. But with five Intel factories around the world now equipped to produce the next generation of chips, the move is finally beginning to pay off. "Barrett's tenure has reinforced the manufacturing dominance of Intel," says analyst David Wu of Wedbush Morgan Securities. "They are three years ahead of their nearest competition."
Drawn back to the question of his legacy, Barrett rejects the notion that improving Intel's manufacturing will be remembered as his primary feat. "He led the conversion to 300-millimeter wafers," the CEO says aloud, as if weighing over an epitaph. "No, it's got to be something a little more exciting than that." Instead, Barrett prefers to point to the foreign markets Intel has cracked open under his watch. When Barrett took the reins from Grove, Intel's annual sales to Asia were $5.5 billion. Today they've grown to $12 billion, and overseas revenue makes up three quarters of Intel's income. While tech observers in the United States talked about the declining growth of the PC market, Barrett looked abroad for opportunities.
Wedging open new markets meant actually spending time abroad. His colleagues call Barrett's frequent trips abroad "death marches," because he attends several meetings in multiple countries in a single day. CFO Bryant says that during the recession —he urged Barrett to stay closer to home to help stop the bleeding. But Barrett maintained that traveling through countries like China and India, where PC usage is still comparatively low, would fuel Intel's growth. "I was a skeptic," Bryant says. "But I think he was right."
But success in Asia doesn't help Intel's stagnant U.S. growth. That's why Barrett's next bet is on driving into new markets, like cell phones and such consumer-electronics devices as flat-panel TVs. These markets, Barrett says, are about to undergo the same transition PCs went through a decade ago. Instead of designing each new product around a new microprocessor, cell phone and TV makers will want to use the standardized chips that Intel is capable of building quickly and cheaply. Ron Slaymaker, a vice president at Intel's biggest rival, Texas Instruments—which dominates the chip market in those industries—doubts that the telephone or TV makers will want to open the door to Intel and risk the same dynamics that took root in the PC industry, where two companies, Intel and Microsoft, earned most of the lucre. Barrett admits Intel's incursion is "still a work in progress," and that Paul Otellini, Intel's likely next CEO, will be the one seeing those efforts to fruition.
When the time comes to step aside, Barrett doubts that he'll "go hibernate" at his ranch. He'll most likely replace Grove as chairman and spend more time advocating for his causes. Among other issues, Barrett is opposed to laws that would require tech companies to expense options they give employees, and he thinks America is beginning to take its technology leadership for granted. "Why do we have $30 billion in agricultural subsidies and can only put $5 billion a year for basic engineering, math and science research?" he asks. He notes as well that outsourcing is a 40-year trend and that its critics are simply being opportunistic in an election year.
Some outsiders have speculated about a position in government for him; Barrett has been an active George W. Bush supporter, yet also contributed money to Joe Lieberman during the primaries. But he says he's not suited to embrace bureaucracy after coming out of Intel's "no-nonsense, disciplined environment." Then again, can't you just imagine Craig Barrett outside the Commerce Department launching a few water rockets into the air just to let off some steam?
