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Barrett weighs in

newsmaker For Intel's CEO, the customer is king, clock speeds still matter and the United States is "basically complacent."

If there's one thing Intel CEO Craig Barrett really enjoys, it's proving his critics wrong.

Three years ago, Wall Street complained the company was overspending on factories and capital expansion. But Barrett, a former Stanford engineering professor who became chief executive in March 1998, stuck with his plan. In the end, Barrett had the last word as the investments paved the way for Intel to crank out new notebook and server chips at a time when business was picking up.

Barrett, who has been with Intel since the 1970s, has led the company through some of its best times as well as through some of its worst. In the run-up of the late 1990s, Intel romped to one record-breaking quarter after another.

But Intel then suffered along with the rest of the technology industry after the bursting of the dot-com bubble and the subsequent economic recession. The company was also forced to retreat from money-losing ventures, including the manufacturing of Intel-branded consumer devices such as digital cameras.

Barrett has since navigated the company into new categories, including the creation of chips for digital home devices. Intel is also moving into dual-core processors for upcoming desktop and notebook lines. Dual-core chips can provide far better performance than traditional single-core chips.

With less than a year left to go before turning over the reins to heir-apparent Paul Otellini, Barrett is hardly in a retiring frame of mind. A card-carrying member of the Silicon Valley elite, Barrett is one of the more vocal high-profile technology executives on the subject of offshore outsourcing and the threat to American competitiveness. He recently sat down with a group of editors and reporters from CNET News.com, speaking his mind on topics ranging from the folly of industry alliances to the fecklessness of zigzagging politicians.

You travel the globe a lot. How do you think the United States ranks versus the rest of the world in terms of technology adoption?
The U.S. has a whole series of complacencies about it. It is complacent on its economic development platform. It is complacent on its infrastructure platform. It is complacent on the whole issue of promoting research and development. So you go down the list--education, infrastructure, research and development--and the U.S. is basically complacent.

It is very difficult to go to Washington, D.C., and discuss those three aspects of competitiveness (education, infrastructure, and R&D) with anybody.
In fact, we have been having this great argument in the press about offshoring, or offshore outsourcing. The press in general, the politicians in general, have not picked up the issue that you need to be competitive. The fact is that the U.S. is pulling further behind from an infrastructure standpoint and the dismal aspect of the U.S. education system. It is very difficult to go to Washington, D.C., and discuss those three aspects of competitiveness with anybody.

What is the reaction when you talk to politicians?
They have other 30-second priorities.

Let's turn to the technology business. Do you see a faster PC upgrade cycle in the future?
You are probably going to see more distributed upgrade cycles. It is not going to be big lumps of stuff happening all at once, but I am sure people will upgrade their (PC) clients in the U.S. Consumption in the emerging economies is growing much faster than the U.S.--and will continue to do so.

Is it a problem for you that Microsoft has not been accelerating its (operating system) delivery schedules?
You should really talk to Microsoft. I would rather see those new features get into the market, but it does not slow us down in any great respect. We do not want to put a whole bunch of stuff out there that we say is 64-bit compliant and perhaps is not because we do not have the software to validate it before it goes out.

There is a lot more conversation and dialogue around the customer being king. What specifically over the last 6 to 12 months has happened that was not happening in the past 20 years?
The customer is king from the standpoint that the customer uses your product. You may either get the customer excited about your product or you do not. And so you start to look around and say, "What are the exciting applications for technology?" Is it something that you perceive as exciting or something that the customer perceives as exciting.

Back in the mid-1990s, Intel thought ProShare was exciting and that the customers would be excited--but we forgot to ask the customers whether they were excited about it or not. If you look around today, the customer speaks very loudly and very rapidly about what their interest is. I do not think it is the last 6 to 12 months. I think it has been a gradual awakening as we move from a technology focus to a use focus.

If you look at the HPs and IBMs, they are trying to come up with terminology--be it utility computing or adaptive computing or what have you--because customers are demanding that the products interoperate. That is what I was talking about.
Well, there is probably nothing better to sensitize you than a recession.

We have seen Intel move away from clock speed and talk more about things like processor speeds. Is that going to be the company's future focus?
We are still interested in performance, but you can drive performance in a whole bunch of different ways. We have not lost any enthusiasm toward faster transistors or toward higher performance. We will just be able to get performance using different technology and different techniques.

Do you foresee more alliances like the Sun-Microsoft and Microsoft-Oracle announcements?
The easiest thing in the world is to announce an alliance. You probably can count on one hand all the successful alliances that brought great technology into the market place.

You talked about recessions being a key in driving sensitivity. To what extent is a more educated customer changing the way you have to do business?

I have been here 30 years and have been through about 10 recessions.
In general, I would think that IT managers are becoming more sophisticated. They are looking for a return on investment--and interoperability. IT managers are making different demands on the vendors today than they did 5 years ago. Clearly in the 1990s, a lot of investment was made in IT infrastructure that did not have huge benefits associated with it.

Is that how you decided to go to dual core sooner?
Well, you know, Intel is in the business of bringing new technology into the marketplace. Our core business is to innovate and integrate and so you innovate new aspects of technology--whether it is discrete bits of technology--then you integrate it into the core processor. So going back to an integrated dual core or multi-core approach is what people have been talking about for the last 4 or 5 years.

What sort of markets are ripe for digitization? What are the industries you see that are going to need this?
Health sciences is a big one just because it is such a huge piece of the gross domestic product of the established economies and they are such relatively slow adopters of technology. With their basic infrastructure in the back office, the health care industries have been pretty sluggish in terms of computerizing and taking the cost down.

How about the energy field? A few years ago you were talking about alternative energy and people looked at you like you were crazy. Now Stanford says it is one of their top three research areas.
When I ask people what their initiative would be if they were president for a day, most come back with the same answer: something to do with the energy ecosystem.

Going to the moon was the great Sputnik challenge. Today I think the challenges we face are a little bit different, and I would think it would have something to do with the energy environment that we have. It's not surprising to me that a lot of other people are thinking in that same way.

How do you see the convergence game developing when the PC guys want to get into the consumer electronics space?
You guys always want to picture this as a battle. You go to the CES show and the Sony guy stands up and says the TV is the center of the universe. Then the Intel guy stands up and says the PC is at the center of the universe. And then somebody else from a software company stands up and says no, the software is at the center of the universe. I think that is all kind of hokey thinking.

All this stuff needs to work together. I mean it's common interfaces and common protocols. These things have to be complementary and work together. I do not see it as competition.

But does a company such as Dell get the benefit because it has a great distribution model for what it is, just a commodity now, as opposed to a Sony or a Samsung with huge retail operations and huge R&D efforts.
I do not expect to see any of the major consumer electronics players disappear. I think the Samsungs and the Sonys are going to still be around. I would dare say most of us in our homes have stereo systems. But not everything is from Kenwood or Technics or Sony or Samsung. I have got a hodgepodge in my house. You guys have probably the same thing in yours.

Tejas (a version of the Pentium 4 due out later this year) has been eliminated from the road map and observers believe notebook and desktop processors are going to converge again. So is the Pentium 4 having a shorter lifespan than expected?
You know, we are not magicians. It takes us several years to develop a microprocessor from scratch and as the environment and the ecosystem changes around you. So you adapt to it. You do not just stick to your guns saying, "The hell with the environment. We will do whatever we want to do, independent of what the market wants." Canceling Tejas and the acceleration of the dual core seems to fit right into that general category of using our resources for the best possible returns. I think even Peter Drucker would be happy with that.

Has the corporate culture you had hoped to forge when you became CEO worked out according to your plans, expectations? Were there surprises along the way?
The biggest challenge we have had from a culture standpoint has been in the last three years during a difficult business time. I have been here 30 years and have been through about 10 recessions at various lengths, and the last one was over twice as long as any of the previous ones. I think the structure that we had in place, our salary structure is pretty variable so it accommodates ups and downs in the business cycle and you do not have to surprise people with salary reductions or surprise them with big layoffs and things like those.

I think the culture worked well from that standpoint, but I think every company in the high-tech industry has suffered in the last three years just because there was a long downturn. A lot of employees had never been through a downturn before and people were used to the '90s, which was a good time for all. That was difficult, but we still have the same values that the company operates on. All the internal awards that we give, all the recognition that we give, the annual performance appraisal cycle that we go through--it's all based on performance to Intel values.