As part of Intel’s efforts to promote the use oftechnology with communities around the world and as arepresentative of the “Partnership for Lebanon,” IntelChairman Craig Barrett visited Lebanon last month. He alsospoke to Executive
How does the American Lebanese partnership andthe Berytech fund you contributed to, fit into the UnitedNations’ Global alliance for ICT you currently chair?
The UN Global Alliance has the same objectives as thePartnership for Lebanon, which aims to improve education,healthcare, economic development and the interaction betweengovernments and citizens. The partnership is obviouslyinvolved in Lebanon because of the destruction that resultedlast year from the conflict between Israel and Hizbullah. Weare not taking any sides on this issue, our concern is onlyfor the individual Lebanese citizen with the aim ofimproving his situation. On a much larger scale, the UNAlliance oversees what can be done to advance the status ofcitizens from emerging countries around the world. Theglobal goal is very similar to the Partnership’s one. As forthe Berytech fund, the issue of economic development is alsopart of the Partnership’s objectives and the UN GlobalAlliance. Economic development can come in various flavors:foreign investment, organic growth, economy, orentrepreneurial activity, in this last regard, Lebanonoffers a long cultural and societal history. The Berytechactivity aims to stimulate and promote economic growth,using education and potential young entrepreneurs. Berytechis unique in the sense that it is in an incubator: it takesideas, before they’re formed into business plans and givesthem a chance to grow and nurture. The investment inBerytech, a purely Intel venture, is totally consistent withthe partnership’s goals.
You’ve declared to the American congress that UScompetitiveness can only improve through education and R&D.Where do you see America standing in the economicenvironment in a few years, especially now that emergingcountries are slowly growing and siphoning off jobs?
The challenge the USA faces lies in the worldwidecompetition for educated workers and new ideas. It is thereason why so many of us lobby our own government for moreR&D and progress in education, especially in the areas ofmath and science. We are very concerned by the fact that ifthe US continue on their current course, it would faceserious problems in the future from a competitivestandpoint. We have proposed various efforts such as theincrease in research investment and improving the fields ofmath and science, which are both incredibly critical to thefuture of competitiveness.
You’ve said that “companies can’t save their wayout of a recession or even prosperity. Instead, they have toinvest in innovative products and technologies.” What isIntel doing in this respect?
If you look at our business at the beginning and the endof any year, separated only by a twelve-month period, about90% of our revenue in December is generated by products thatwere not available on the market in January. Unless you havea development machine that can create new products, androutinely achieve technology leadership, you cannot besuccessful. So when I say “you cannot save your way out of arecession,” it means that if you slow down the developmentmachine, trying to improve financial performance by onlycutting back on investments, you ultimately fail. If youlook at Intel’s general trend over its entire history, R&Dspending always tends to increase. We spend from $5.5 to $6billion every year on research and development, which is afairly large amount, larger by any country’s means.
E In a world where networking, computing andcommunications are converging even more, how is thisaffecting Intel’s overall vision and strategy?
The convergence of computing and communications is verycompatible with Intel’s philosophy and direction. Ascomputing, communication and rich content come together,more computing power to handle data is required. The trendis consistent with Intel’s generic approach, focusing onmicroprocessor power, on Moore’s law, continually improvingcomputing, generation after generation after generation. Idon’t see any disconnection between such a convergence andIntel’s direction.
As the economic environment evolves, Intel faceslower margins and increased competition from countries suchas China or India. How do you see the trend going and whatsteps is Intel taking to rise up to the challenge?
It is a rather interesting fact that people have beenwriting about Intel facing lower margins for years andyears. However, I am not sure the proposition is accurate.We have just announced, two or three days ago, that weexpect margins to increase for the second half of the year.For the past twenty years, margins have fluctuated betweenthe low and high fifty percent range. I also believe our CFOforecasted this year’s margins for the mid-fifties. Oursuccess is based on our leadership technology in the marketplace, providing us with a higher return on investment and ahigher margin on product. The challenge is to maintain ourmarket leadership position, which determines what marginswill look like. There is no question that the averageselling price for microprocessors has decreased over theyears, while our production machine is getting moreefficient, thus taking the cost down. As costs follow thefall in product prices, margin levels stay roughly constant.
How long will it take before we see seriouscompetition from countries like China and India in themicroprocessor industry? How does this affect Intel’s futureplans?
Intel has faced competition in the micro-processing area,from Europe, US, Japanese as well as Chinese companies.Competition is not something new to us, we respond to it byavoiding standstill, moving the technology forward instead,at a very rapid pace. This requires a very large investmentin R&D, which companies need to match if they want tocompete with us in the next generation of products. It isnot about figuring out how to make last generation productsat cheaper prices, but rather how to produce next generationtechnologies, which is what people in the market place want.I suspect we will continue to face competition in the nexttwenty years like we’ve done before, but the challenge forus remains the same.
Intel has long thrived by concentrating on PCmicroprocessors. Now Intel is trying to play the same rolein various fields such as consumer electronics, wirelesscommunications, and health care. What prompted the decisionto diversify your product base and which direction do yousee Intel taking?
The healthcare industry has not made very effective use ofcomputing technologies. It is a very large market withimportant opportunities for the sorts of products Intelmanufactures. In consumer electronics, the opportunityresides again in the convergence of computing,communications and content. The fact that computers havebeen built historically using Intel architecture, as digitalcontent becomes more important, consumer electronics, alsofocused on content, will become more computer-like. There isa definite opportunity to move our architecture intoconsumer electronics applications. This convergence ofcomputing, communications and content allows us to grow fromcomputers to consumer electronics devices.
How does this diversification affect the waychips are produced? Is it affecting collaboration withincompany teams as well as alliances with other marketplayers?
It actually expands the spectrum of companies you need todeal with. Historically, Intel always dealt with thecomputer industry, with large companies such as Dell,Packard and others. But as the convergence of computing,communication and content further increases, we end updealing more and more with consumer electronics and contentcompanies, we previously, were not much involved with. Weare still engaged in our standard computer business, towhich wireless communication capability and content are alsointegrated. These three elements coming together imply thatour products look less and less like standard computingplatforms, assimilating communication and contentinitiatives.
How difficult is it to brand an “ingredientproduct” such as Intel and convince customers to requireit?
You hire some very clever marketing people who create abrand like the “Intel Inside” branding campaign, the mostsuccessful “ingredient branding” campaign the world has everseen. We’ve been able to achieve this because of ourleadership position in the marketplace and used it toexpress the importance of our technology through aningredient branding campaign. If we had lacked leadershipposition from a technology standpoint, it would be verydifficult for us to convince anyone of the “ingredient’s”value. We were thus able to engineer a brand around ourpreeminent position in technology. Today, people are awarethat microprocessors are the PCs brains; everyone wants thesmartest brain and they want Intel. You need therefore bothgood technology and a very smart marketing person whosename, by the way, is Dennis Carter, to recognize this andconvince others to pursue it.
What is your view on the evolution of theinformation technology in the Arab world where, in somecountries, infrastructure is still nascent and monopoliesrun high?
There are excellent opportunities in the Arabic-speakingworld in this regard. Countries recognize the need for smartpeople and smart ideas as well as good infrastructure, andpart of this infrastructure relies on computing andcommunication. Many economies have weak communication orinefficient and extremely expensive infrastructures, such asin Lebanon, because of government control or actions on thesector. Ultimately those infrastructures need to become morecompetitive. There is great opportunity for investment,creativity and technology, which is what companies likeIntel are all about.
How do you picture the technology world in 15 years?
Fifteen years is such a long time in our industry, itmakes it very difficult to tell. The internet was born andgrew dramatically in the space of ten years. Digital camerasappeared, music also became digital, its delivery movingfrom a CD form to an internet feed. However, what is easy toproject is that there will be definitely huge changes andcompanies which are flexible and adaptable will be mostsuccessful in such a time frame. As an example, if you wereoperating like Microsoft in the software business ten yearsago, you could never have forecasted Google posing such abig challenge in the future. Google was born ten years agoin a university; it was not a product, not a business, butonly an idea. The beauty of our industry, its excitement,springs from the fact that concepts, often created by oneperson, can change the face of the whole sector. This meansthat any company wanting to be successful needs to keep itseyes wide opened continually for new ideas. This reasoningmotivates Intel’s involvement in so many joint researchprojects with universities and venture capital—the fundingof startup companies—and allows it to stay close to whatgoes on in the basic research and product worlds. As my bossAndy Grove used to say, only the paranoid survive,otherwise, one runs the risk of being defeated by newtechnologies.