Otellini’s lame apology speaks volumes about Intel

Diffident admission re product refreshes and lost emails in antitrust case don't impress Tom Yager

The leading quote from last week’s news comes from Intel CEO Paul Otellini: “We’re doing product refreshes every two years, which is the model we invented and then stopped doing after Pentium 4, shame on us,” Otellini said. “We fell off it — mea culpa, we screwed up — and now we’re back on that pace.”

Otellini was speaking at a Morgan Stanley Technology Conference, but regardless of the venue, every time a CEO speaks, he or she is using analysts and journalists as a conduit to shareholders. When a CEO takes a podium to apologise to shareholders, it tends to be the board of directors’ idea.

This apology was obtuse, though profuse. The screw-up to which Otellini refers is his decision to clear Intel’s shelves of x86 property and dump it on AMD in one drop so that Intel could end the year with a bang, having had the last volley in the CPU wars. It did that. But one could liken Intel’s strategy in latter 2006 to a massive spread of fireworks that’s sent up simultaneously. Everybody goes nuts at the spectacle of it, but after that brief rush, all that’s left is silence and smoke, soon followed by the glow of taillights.

As tacky as it is to quote oneself, I put Otellini’s present bind succinctly in a column I wrote last August: “Intel shot its entire wad on Core microarchitecture. From here, the only place Intel can go is bigger cache, more cores and faster clocks.” Indeed, that sums up Intel’s plans for 2007, and there’s no swaggering spin, distraction, or buzz-word bending that can make up for the enormous technology gap between Core 2 and AMD’s re-engineered Barcelona quad-core Opteron. It isn’t likely that Intel can play engineering catch-up, given that Otellini has pink-slipped 10,500 workers.

He will have more than empty cupboards and empty desks to apologise for. He set a strategy to bulk up Intel’s manufacturing capacity and to jam up AMD by forcing prices down and leaving AMD unable to meet spiked market demand. Market demand is sagging, and if it returns, AMD has the capacity advantage: It has third-party foundries standing ready to stamp out AMD CPUs if need be.

Another example of poor judgment is Otellini’s fixation on CPUs and chip sets. AMD’s acquisition of ATI put it in the high-margin peripherals business as well as giving it a growing role in high-performance chip sets for Intel desktop and notebook PCs. Intel’s hostile attitude towards chip set makers drove Nvidia, a graphics and chip set giant, to make surprisingly close ties with AMD despite its purchase of Nvidia’s sole competitor.

If only it ended there. Recently, Intel informed the Delaware Federal District Court that it can’t produce relevant email messages that were exchanged after the filing date of AMD’s antitrust lawsuit against Intel. The latter’s letter to the court blames individual human error while heaping detailed praise on executives’ document retention plan.

It’s not that Otellini hasn’t done anything right. He did put the brakes on NetBurst. He won an exclusive with Apple and got Sun Microsystems to add Intel to its product line. But in the minus column, Otellini lost the company’s gold medal exclusive PC maker, Dell.

Intel’s CEO should be gilding his parachute. If he lasts out the year, it will be because Intel’s board wisely takes its time to choose a replacement. My litmus test? Find someone who believes that Intel’s yearly sponsorship of the AM Turing Award matters more than convincing a judge in Delaware that evidence really, truly got lost. And find a CEO who, when he or she apologises for lousy decisions, uses the pronouns “I” and “me.”

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