In 1994, Andrew S. Grove was facing one of the most challenging times in his life as chairman and chief executive of Intel Corp., and in his personal life.
Intel’s troubles began when a flaw turned up in its high-powered Pentium computer chip. After initially downplaying the problem, Intel eventually was forced into the unusual and embarrassing spot of replacing chips for any buyer who asked.
Later that year, Grove discovered he had prostate cancer. But he battled back and eventually wrote a Fortune magazine cover piece about how he overcame the disease with a high dose of radiation rather than undergoing radical surgery.
Now, Intel is facing challenges that could threaten its dominance as the world’s biggest computer chip manufacturer–and it will have to find its way forward without Grove at the helm.
Surprising the computer industry, Intel said Thursday that Grove is stepping down as chief executive immediately after the company’s annual meeting May 20 and will be succeeded by Craig R. Barrett, Intel’s president and chief operating officer.
Barrett, 58, will retain the president’s post, but give up his chief operating officer position, the company said. Grove, 61, said he will remain chairman and concentrate on “broad strategic issues concerning the industry and Intel.”
Although Grove is one of the biggest names in the computer business, analysts said his departure won’t have that much of an impact on Intel or the chip industry. Barrett, who has been with the company since 1974, was named president last year and has been widely viewed as Grove’s heir apparent.
“Barrett has been running a lot of operations anyway,” said David Wu, an analyst with ABN AMRO Inc. in San Francisco. Wu said the main difference between Barrett and Grove is that Barrett “smiles a lot more and is more diplomatic. He’s taller, too.”
Yet Grove’s shoes will be hard to fill. One of the founders of Intel in 1968, he has been the driving force behind Intel’s key initiatives for several years.
He steered the company through its transition from a diversified semiconductor-maker in the mid-1980s to a highly focused developer of microprocessors–devices that are the brains of computers. And he turned Intel into one of the world’s best-known brand names.
Perhaps Barrett’s biggest challenge is the enormous popularity recently of low-cost personal computers. The shift to PCs that cost less than $1,000 comes at the expense of high-end machines, where Intel is strongest.
The company has only recently begun to address PC manufacturers’ demand for cheaper chips by introducing Celeron, a stripped-down version of its popular Pentium II chip. National Semiconductor Corp.’s Cyrix unit and Advanced Micro Devices Inc., both Intel rivals, have been quicker to recognize the market for low-cost systems.
“The key thing for Intel to resolve–and Barrett will have to take the lead–is to build applications that will make people want to go out and buy those high-end machines again,” said Linley Gwennap, senior research analyst at MicroDesign Resources in Sebastopol, Calif. Referring to Intel’s ubiquitous ads, he said, “Dancing people in bunny suits isn’t enough.”
Another challenge is the fear that the computer industry is beginning to slow down. Though sales are still rising, the rate of PC orders has declined enough to prompt Intel to warn earlier this month that its first-quarter profits and sales would fall short of analysts’ expectations.
The company has also halted construction of a $1.3 billion chip plant in Ft. Worth, and will delay opening the facility for two years.
Intel said the decision will allow it to reconfigure the plant to produce 300-millimeter wafers, replacing the 200-millimeter silicon wafer that is now the industry standard.
“We are concerned that their growth in earnings is going to be stalled for a while,” Dan Scovel, an analyst with Fahnestock & Co. in New York, told Bloomberg News. “There is price erosion, and competition is nibbling at the fringes.”
Some analysts say that by giving up day-to-day control, Grove may be better able to guide the company through the industry’s rapidly changing market.
Christopher A. Chaney, an analyst with A.G. Edwards & Sons Inc. in St. Louis, said what Intel needs at this time is a “strategy builder”–a role Grove is well-suited to fill.
“I would be disappointed if I went to Intel and saw Andy Grove signing purchasing requests,” Chaney says.
Barrett, too, is well-regarded. He’s seen as a master tactician who is ultimately responsible for Intel’s excellence in manufacturing and ability to execute. For example, he instituted a way to duplicate manufacturing processes in Intel plants around the world to ensure consistency. He was also instrumental in developing Intel’s “concurrent design” process to develop multiple products at the same time.
Grove said Barrett is ready to become CEO.
“Craig epitomizes Intel’s values and Intel’s operational culture every bit as much–and maybe more–than I do,” Grove said in an interview on CNNfn. “He’s more disciplined than I am. He’s more organized than I am. He is more rigorously maintaining Intel’s egalitarian values and culture than I am.”
Grove said he will remain an active chairman, spending time cultivating relationships outside the company and learning about the latest applications. One of his goals will be to work with developers in trying to increase bandwidth, the rate at which information is transmitted through an Internet connection.
The company has not yet named a new chief operating officer. But analysts already are speculating that the position could be filled by either Paul Otellini, Intel’s head of sales and marketing, or Frank Gill, who runs Intel’s communications business.
Separately, Intel announced that its board approved an increase in the company’s buyback program by 100 million shares, to 129.8 million shares. The company has 1.8 billion shares outstanding.
The buyback, typically a way for companies to boost their stock price, will help Intel reward shareholders even as it struggles with slower earnings growth.
News of the repurchase plan pushed Intel shares up $2.12, closing at $78.19, on the Nasdaq stock market.
