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Intel board backs Otellini as CEO

As the chipmaker heads into a year of transition, the new chief will have his work cut out for him.

Intel's board voted Thursday to elevate Paul Otellini from president to CEO in May as the chipmaker grapples with a number of changes.

Otellini, 54, will succeed Craig Barrett, 65, Intel's fourth CEO, who said earlier this year that he will step down as Intel's top executive. Otellini, who is also Intel's chief operating officer, has been expected to become CEO following Barrett's retirement.

Intel's next CEO,
Paul Otellini

Although Otellini is deeply involved in Intel's day-to-day operations and its product plans, he'll have his work cut out for him during 2005. The next year or so is expected to be a period of transitions for the company's products and management.

Intel, which claims more than 80 percent of the PC processor market and does a huge business in PC chipsets and motherboards, will release a number of major new products in 2005 and attempt to erase a series of missteps in 2004. Intel has already begun a shift to place much less emphasis on processor speeds and instead emphasize overall performance.

Next year will be the real test of the strategy, as Intel will begin a move to dual-core processors, which will incorporate two processor cores into one chip. The company will also begin to deliver more feature-laden single-core chips.

"We're moving toward platform development (designing substantial portions of computer systems), digital home, digital office, dual core products, essentially the silicon foundation for the next generation of products," he said in a phone interview.

Though Intel is getting into new markets, he added that, culturally, things won't change much at the company, a statement he and other Intel executives have stressed for the past few years.

Over the years, Intel has moved from simply stamping out and selling parts to orchestrating entire PC platforms around its processors, such as Centrino for notebooks. These platforms often involve developing new features, such as high-end audio processing, and writing software. Intel has thus expanded its software group significantly.

Intel's CEO,
Craig Barrett

Otellini has, in one way or another, been behind many of the changes that are preparing Intel for the 2005 transition. For one, he made the decision to cancel Intel's delayed 4GHz Pentium 4 and instead to bring out Pentium 4s with more performance-enhancing cache memory in early 2005. Otellini was also the executive to first champion the company's dual-core approach to the public in May.

Continuing to push rapid clock-speed increases would eventually increase processors' heat and power consumption to impractical levels for everyday PCs, Otellini has said.

As CEO, Otellini is also likely to turn his attention to getting back on track Intel's chronic money-losing Communications Group, which includes its flash memory business and chips for networking and communications gear.

Otellini, however, defended Intel's progress in this area. A few years ago, Intel had only one communication product: Ethernet. Now it sells chips for a variety of functions.

In addition, Otellini is likely to face tough decisions related to manufacturing. The company, which was caught off guard in the third quarter by lower-than-expected demand and excess inventory among its customers, said it will cut back on the number of chips it manufactures during the rest of the year. Eventually, if demand does not pick up, Intel will have to make decisions about what to do with some of its older factories.

Otellini, who joined Intel in 1974, said in a recent interview that he hopes his becoming CEO won't alter much about Intel or its culture.

"One thing about Intel is that we have had a series of very seamless transitions"--from Robert Noyce to Gordon Moore to Andy Grove to Barrett--"and you really do not notice an abrupt transition in any one of those things," he said. "I think our goal in the next (CEO) transition is to manage this in a way so that Intel is still Intel, before and after. We will all bring our own perspectives, but we will also bring two decades-plus of history working together into this job. Every one of these guys has been around a long time in Intel."

In addition to serving as Intel's president since January 2002, Otellini ran the Intel Architecture Group--the company's main revenue engine, which includes its processor and chipset businesses--between 1998 and 2002. Before that, he was vice president of sales and marketing.

Otellini, who describes himself as a "product guy," isn't afraid to roll up his sleeves. One time, he drove a forklift at an Intel warehouse to help the company make end-of-quarter shipments.

Otellini will officially take the helm at the company's annual stockholders' meeting on May 18, Intel said in a statement.

At that meeting, Barrett will succeed Grove as chairman of the board of directors. Grove, 68, will leave the board and become a senior adviser to the board and senior management.

Intel did not say who will replace Otellini as president and COO.'s Margaret Kane contributed to this report.