Tue, Oct 26, 2004 page11

• Intel chief gets down on his knees

  MANAGEMENT MISSTEPS The CEO of the world's biggest chipmaker got on his knees and begged forgiveness for driving down his company's profitability

  • BLOOMBERG
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  Craig Barrett, Intel Corp's 1,88m chief executive, walked onto a stage during a industry conference in Florida last week, got down on his knees in front of more than 6,000 technology managers, and begged forgiveness.

  "We ate crow," Barrett told the crowd as he cupped his hands. In an interview offstage, he said managers at Intel, the world's largest computer-chip maker, had become "too relaxed." Management missteps caused five projects to be scrapped or delayed this year, including plans for a new Pentium processor.

  

  Craig Barrett, chief executive officer of Intel Corp.

  PHOTO: AP

  Intel overestimated demand and now holds a record inventory that reduced third-quarter profit growth to the slowest pace in five quarters. Intel's shares have dropped 34 percent this year, the second-biggest loss in the Dow Jones Industrial Average.

  Barrett said he told managers to each submit a list of five things they're doing to fix Santa Clara, California-based Intel's problems. At stake is Barrett's push to expand Intel beyond making chips that power personal computers, a market the company has dominated for more than 20 years.

  "Every group did an internal assessment -- show us the plans, show us the results," Barrett said in the interview Oct. 19 at a Gartner Inc conference in Orlando, Florida.

  Two days after Barrett's speech, Intel shelved plans for a chip for large-screen projection televisions. The company misjudged demand for mobile-phone chips and the unit's loss doubled in the third quarter. Intel recalled some computer-graphics chipsets this year.

  Barrett, 65, says he wants Intel to plug those gaps by focusing on products such as wireless Internet access instead of just ratcheting up Pentium's speed and by fixing problems in its communications business to build another avenue for growth.

  His top communications-chip deputy, Sean Maloney, will lay out his latest plan at the CTIA Wireless Expo today in San Francisco. One effort he'll discuss is a push to create wireless networks that cover city blocks.

  Intel wants to replicate its success with chips for wireless-fidelity, or Wi-Fi, hot spots that have cropped up in coffee shops and airports. Those chips, called Centrino, fueled an average of 20 percent sales growth from the third quarter of last year to the second quarter of this year.

  Demand is slowing now. Sales rose 8.1 percent in the third quarter and are forecast to increase 2 percent this period, so Barrett is looking for a successor to drive increases. Net income rose 15 percent to US$1.91 billion, or US$0.30 a share.

  Barrett also wants to fix the communications unit, a key to growth, he told investors at a meeting in New York in May. He pledged that the group would be profitable next year.

  The division's operating loss widened to US$251 million in the most-recent quarter from US$208 million a year earlier, and president Paul Otellini said on a conference call after the results came out Oct. 12 the group took a "step back."

  "What they really need now is to become something beyond the PC and they really haven't had any success," said Mark Morris, an analyst at NWQ Management, which controls US$20 billion and owns Intel shares.

  Central to Barrett's attempt to turn around the business is transferring Intel's success in computers into the US$6.2 billion market for chips that run cell phones. He said that phones need more-powerful processors to run games and cameras.

  "We're just not as far along as I'd hoped to be at this point," Barrett said in the interview. "Our friends at TI and Qualcomm are reasonably proficient in this space."

  Texas Instruments Inc and Qualcomm Inc are the biggest makers of digital signal processors that are the main chips in cell phones, and have relationships with handset makers that make them tough competitors, he said.

  Intel has struggled because it made "miscalculations" reading what clients wanted in their cell phone chips, Barrett said. The company's first attempt, a chip called Manitoba, was late and out of step with what handset makers such as Nokia Oyj or Motorola Inc wanted, Barrett said.

  The company tried to sell a bundle of chips that included the signal processor and flash memory together, rather than the individual parts offered by its competitors.

  "We had our techie hats on -- probably had them on backward -- and we decided to put the processor and flash on a single chip," Barrett said. "We're able to do that, and no one cares."
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