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Intel turns to a nonengineer for CEO

By Matthew Fordahl
The Associated Press

Paul Otellini

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SAN JOSE, Calif. — Despite a recent series of product missteps, Intel's board yesterday selected the semiconductor giant's day-to-day operations chief to replace CEO Craig Barrett, who is stepping aside to become chairman in May.

Paul Otellini, a 30-year Intel veteran who oversaw the Pentium microprocessor's launch in the 1990s, had been viewed as the most likely candidate for the job since 2002, when he was appointed president and chief operating officer.

But doubts were raised in recent months as the world's largest chip maker repeatedly shuffled its product lineup, canceled projects and found itself in the unusual position of following the lead of its much smaller rival, Advanced Micro Devices.

"I think there's a certain monkey on Paul's back here taking over the reins of the entire corporation," said Rick Whittington, an analyst at Caris. "He's not only got to get the processor group, which he's been in charge of, back on track, but the entire company."

Former CEO Andy Grove, who will step down as chairman in May and become an adviser, expressed confidence in the upcoming team of both the technologist Barrett and Otellini, who has a background in finance, marketing and sales.

"We now have a technologist/manufacturing person with a sales/product guy," Grove said. "At least on paper, the complementary nature of these two is closest to the ideal than anything we ever had before. I really like that."

Paul Otellini Incoming Intel CEO Age: 54. Education: Bachelor's degree in economics, University of San Francisco; MBA, University of California, Berkeley. Career: Joined Intel in 1974. Managed Intel's business with IBM from 1980 through 1985. Promoted to general manager of the Peripheral Components Operation and Folsom Microcomputer Division in 1987. Appointed group vice president in 1988. Became technical assistant to then-president Andy Grove in 1989. Named general manager of the microprocessor division in 1990. Promoted to corporate officer in 1991, senior vice president in 1993 and executive vice president in 1996. Named president and chief operating officer in 2002. He will take over as chief executive officer on May 18, 2005. Source: The Associated Press

It's the first time in the company's 36-year history that a nonengineer has been named chief executive.

Otellini, 54, will take over a company that is the dominant supplier of the chips that serve as the brains of personal computers. The problem is the PC market isn't growing like it used to.

Intel has been shifting from its focus on building chips that simply run faster. Instead, it's trying to design according to how its technology is used. Last year's successful launch of Centrino Mobile Technology is just the first of many upcoming examples.

Otellini took some of the blame for the company's cancellation last month of a much-hyped chip for large-screen televisions.

"What was wrong was we made the decision to go public on that before we were sure it was mass-producible ... ," he said. "There was nothing wrong with the risk. The mistake was an error in judgment on my part to go public early on it."

Analysts believe Intel's greatest need is to expand beyond its core PC business.

"They need to have a new strategic vision going forward," said Apjit Walia, a semiconductor analyst at RBC Capital Markets. "Primarily, they have to figure out the current trajectory of Intel from where they're a pure PC play into a company that can seek new areas of growth."

Intel has made big moves into server chips, including its Itanium processor. It's also expanded into providing flash memory and processors for cellphones and handheld computers.

At the same time, it's been trailing its much smaller competitor Advanced Micro Devices, which beat Intel to market with next-generation PC and server processors that offered many advanced benefits of Itanium. After months of denying that the market was looking for such a chip, Intel changed course and announced a similar technology this year.

"Intel is not gaining traction with its numerous investments and extremely aggressive R&D investments over the last dozen years," said Whittington, the Caris analyst. "The Barrett era was not Intel's finest hour."

Grove, however, credited Barrett with turning Intel from a primarily domestic supplier of chips to a global manufacturer. He also praised Barrett's leadership during a deep economic downturn.

"He managed us through a horrific recession — a deeper and longer recession than anything I remember," Grove said.

Intel remains financially healthy. In the first nine months of the year, it earned $5.4 billion, or 82 cents per share, on sales of $24.6 billion.

Copyright © 2004 The Seattle Times Company

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