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Intel ex-CEO looks back at biggest blown call: Missing out on the iPhone

Paul Otellini, who retired as the chip giant's CEO on Thursday, tells The Atlantic that he didn't do what it takes for Intel to be in Apple's initial smartphone.

Paul Otellini retired as Intel's CEO on Thursday.
Dan Farber/CNET
Paul Otellini passed up one of the biggest opportunities in Intel's history -- supplying chips for the first iPhone, the chipmaker's former CEO said.

Otellini "decided against doing what it took" to make the chips for Apple's smartphone, The Atlantic reported, based on an interview with the newly retired executive. Here's what he told the publication:

We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we'd done it. The thing you have to remember is that this was before the iPhone was introduced and no one knew what the iPhone would do...At the end of the day, there was a chip that they were interested in that they wanted to pay a certain price for and not a nickel more and that price was below our forecasted cost. I couldn't see it. It wasn't one of these things you can make up on volume. And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought.

He added that "my gut told me to say yes."

Otellini stepped down as Intel's CEO on Thursday, handing the reins over to the company's manufacturing head, Brian Krzanich. During his time, Intel dominated the PC and server chip business, but it largely missed out on mobile devices. The company has made some traction in recent months, but it still isn't in any blockbuster, flagship devices. In addition, it's late with the development of 4G LTE, which will continue to hinder its chances in the market.

As Otellini noted, it wasn't clear several years ago how well Apple's first iPhone would sell or that such a device would change the entire computing industry. One thing Intel has long prided itself on -- and investors have come to expect -- is high margins. It gets those lofty margins from pricing its chips higher than processors from some rivals, and mobile chips sell for much less than the typical Intel PC processor. Apple often negotiates attractive component pricing, but Intel likely didn't want to give a price cut for an unproven product.

And while Otellini's comments make it sound like the main reason Intel wasn't in the iPhone was pricing, battery life likely also played a role. Intel chips generally have been much more power hungry than processors based on ARM Holdings technology, like those from Qualcomm and Apple itself. Intel only recently started focusing on lowering the power consumption of its chips, many years after the iPhone first launched.

Speculation has popped up recently that Intel may one day manufacture Apple's chips for the company, but it's pretty likely that pricing remains a sticking point for any agreement. Krzanich, Intel's new CEO, would be smart to remember the biggest regret of his predecessor.