Interview with Craig Barrett, conducted by Nikkei Business. He acknowledges AMD and Sun as Intel's two biggest rivals.
Investment is the Key to Success, Says Craig Barrett, CEO of Intel
May 2, 2002 (TOKYO) -- IT industry giant Intel Corp. never seems to loose its power. Japanese semiconductor companies used to be some of the biggest competitors of the company, but they don't seem to be in the sights of Intel anymore.
Craig Barrett, chief executive officer of the company (photo), says that it is important to keep investing even in a recession, and that's how the company becomes stronger. Nikkei Business met with Barrett and asked about his strategy in this competitive market.
Nikkei Business: Could you tell us about your views on the IT market, and when you expect the recovery to come?
Barrett: I don't think anyone knows when the recovery will come. We anticipate some recovery in the second half of the year, but it's still an issue of speculation. If you look at the IT market and divide it into two parts, computers and communications, I believe the computer market will recover faster than the communications market. The computer market today is somewhat lower than it was a year ago, but it's stable. The communications market is still showing weakness, and it has not stabilized.
Q: You lowered the capital spending from US$7.3 billion in 2001 to US$5.5 billion in 2002. The number doesn't seem quite confident.
A: There are two issues with our capital budget for this year. One is we built a large number of buildings in 2001, and this year we're going to be putting equipment in those buildings. So the spending for the buildings was included in 2001, not this year. The second issue is, as we move to bigger diameter wafers, 200 millimeters to 300 millimeters, 300 millimeters are more capital efficient, and you spend less to get the same amount of capacity. So I really don't look at our spending as US$7.3 billion last year and US$5.5 billion this year. I look at it more as US$13 billion over two years, which is really a vote of confidence for the future. We're the biggest investor by far going forward.
For R&D, we invested about US$3.8 billion, with about US$34 billion of revenue in 2000, and about US$3.8 billion with about US$26 billion in revenue in 2001. Revenue dropped substantially but R&D did not, and if revenue grows, R&D will grow. It's important that we keep our R&D budget. Even in very bad times, we keep it about flat. If you look historically, in the early 1980s Japanese companies invested heavily during down cycles, and gained market share. Companies that are willing to invest in a down cycle gain market share when the recovery occurs. Intel is investing in a down cycle in anticipation that when the recovery occurs, we'll gain market share.
Q: The processors for PCs are still the main part of your business. What are your expectations for the profitability of processors for PCs?
A: I expect the processor business to continue to grow, but probably not as fast as it has grown in the last 10 years. Looking at the previous quarter, the processor business was 82 percent of total sales, and perhaps it'll become about 70 percent or so five years from now. The parts of our business that will grow most rapidly are probably the communications and networking parts of our business. I expect those businesses to have lower profit margins than the processor business, but I expect profit dollars to grow.
Q: How would you evaluate the sales results of the Itanium processor?
A: It's been in the marketplace something less than a year, but we have about 20 companies shipping computers based on the Itanium processor family. The benefit of either our high performance 32-bit architectures or our 64-bit architectures are the combination of price, performance, and the fact that a large number of computer OEMs offer products based on those architectures. These products typically have the highest performance, and the end user has a choice of who to buy the architecture from. This is very different and very difficult for our competitor, Sun, to compete against, especially at a time when there's a recession and IT managers have limited budgets.
Q: As for mobile markets, Microsoft Corp. and Intel recently announced their alliance in this field. Many manufacturers will feel threatened by another Wintel alliance in this new market.
A: The announcement with Microsoft was only one announcement of many. We had already made announcements with Palm and Symbian with their operating systems on this architecture. So it's not exactly a Wintel announcement.
In this market, there will be standard building blocks with open interfaces, much like the PC market. Standard building blocks allow you to bring hardware to the market faster, and open interfaces allow the entire industry to innovate and bring solutions to the marketplace faster. My contention is that the handheld market will move in that direction, because it is the most efficient model.
If you look at handheld devices, essentially all of the handheld PCs or pocket PCs are designed with StrongARM or Xscale microprocessors. For mobile phones, we sell net capability to both Japanese and Korean phone manufacturers. But that is a small part of our business today, and we have the opportunity to grow market share.
Q: What do you think is the most threatening rival to Intel today?
A: The biggest rival in the microprocessor business on the desktop is Advanced Micro Devices Inc. (AMD). In the server space, it would be Sun Microsystems Inc. If you look in the communications business, on the flash memory side it's companies like AMD and Fujitsu Ltd. For things like other components that go into cell phones, it is companies like Texas Instruments Inc. and Qualcomm Inc. and in the networking area, and there are a wide variety competitors, including Motorola Inc. and IBM Corp.
The Japanese semiconductor manufacturers often are in product areas that we are not in, so we're not direct competitors of one another. One of the issues that Japanese semiconductor manufacturers have faced is their heavy reliance on things like dynamic RAMs and commodity products. The pressure in those businesses has not left much money for investment in the future. So I have to question how successful the companies will be, unless they move forward and invest more in R&D and manufacturing capacity. |
