Arik Hesseldahl

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Intel CEO Paul Otellini to Retire in May

Chipmaker Intel just announced that CEO Paul Otellini, who has been on the job for eight years, will be retiring in May. A successor has not been named.

People are going to wonder if Intel’s board is forcing Otellini out. They’ll point to Intel’s mandatory retirement age of 65. Otellini is only 62, and his predecessor Craig Barrett retired from the CEO job at 65 or 66. But apparently there’s no hard-and-fast rule at Intel. The legendary Andy Grove, the company’s third employee, served as its CEO from 1987 until 1997, retiring closer to age 61.

But the bigger problems stem from the emergence of a fundamentally new computing environment over the last five years. When Otellini was promoted into the CEO job in 2005, Intel essentially set much of the computing industry’s agenda.

It used to be that some of the biggest computing companies in the world outsourced their research and development to Intel. PCs from Dell and Gateway and Compaq were all the same internally, their insides designed by Intel, with only marginal differences on the outside. When Intel made seemingly innocuous choices to the designs of their chips, those choices had a way of rippling throughout an entire industry.

Intel is hands-down the best company in the world at building chips, and also at managing the jaw-droppingly complex accounting and logistics that go with that. But it has largely failed to sell its chips in a meaningful way into the new hot computing products of the moment: Tablets and smartphones.

Apple’s iPad — the most popular tablet in the world — doesn’t use an Intel chip, but one designed by Apple and manufactured by Samsung under contract. The same is true of Apple’s iPhone. And none of the successful Android tablet computers have Intel chips in them. Some smartphones do, but only a few.

In practically all of those cases, the chips inside these devices are derived from designs created by ARM, the British firm that licenses its designs to scores of other companies. In turn, those companies build their own chips — with some of their own custom design work — around the ARM-designed core. I’ve always likened an ARM core design to a recipe for a basic cake, around which a baker can then add his own enhancements like frosting, sprinkles and other adornments.

And it wouldn’t be so bad, if the ARM-based chips weren’t also invading Intel’s home turf, the notebook PC. Nvidia and Qualcomm are among the companies that have parlayed ARM-based chips into notebooks running a variant of Windows called WindowsRT, and while the jury is still out on these machines, they are the machines — Microsoft’s Surface is just one example — that are getting the buzz as Windows 8 has come to market in the last month.

In an interview with AllThingsD’s Ina Fried earlier last month, Otellini seemed dismissive of the threat apparently posed by ARM-based tablets, and was hopeful for touch-enabled convertible and traditional notebook PCs: “I happen to believe that the standalone tablet is not the form factor people will (move) to,” Otellini said at the time. “The fact everybody is now fitting tablets with keyboards suggests that real buyers have come to the same conclusion.”

However, it’s not that Otellini’s tenure at Intel hasn’t been a largely successful one. The company weathered numerous challenges on his watch. In 2005 and 2006, there was a big challenge from rival Advanced Micro Devices in the market for server chips. When AMD entered the market with a 64-bit server chip that extended the compatibility of x86-based computing into the 64-bit realm, it flew in the face of the Itanium architecture toward which Intel had hoped to push the world.

AMD’s approach with its Opteron server chips proved more successful and, for a time, it gave Intel competitive fits that eventually forced it to embrace an approach that mirrored that of AMD. The Itanium chip, recent legal dramas aside, has become something of a footnote in computing history.

Intel also faced down numerous legal guns. Its “Intel Inside” marketing program — in which it underwrote a portion of the marketing costs of its PC-making customers — was the target of a 2005 antitrust lawsuit brought by AMD. It was revealed in pretrial filings that sometimes those marketing dollars made the difference between being profitable and losing money. Intel never admitted wrongdoing, but in 2009 it settled AMD’s complaint at a gathering of the two companies’ highest managers in Maui. It also paid AMD $1.25 billion.

Antitrust had Intel in its sights, as well. In 2009, European Union regulators slapped Intel with a $1.45 billion fine, its largest ever against any company in the world. Intel is still fighting that fine.

The U.S. Federal Trade Commission wasn’t far behind. Arguing that not only AMD, but Nvidia had been harmed by Intel’s behavior, it sued Intel in 2010, and secured a settlement later that year. A $1.5 billion settlement with Nvidia followed last year.

“Intel had a good run under Otellini’s leadership. He survived AMD’s Opteron, the shift to 64-bit computing, and a huge legal onslaught,” says Patrick Moorhead, a former AME executive and head of research firm MoorInsights and Strategy. “The biggest missing piece of his tenure was mobility success.”

Here’s Intel’s announcement:

Intel CEO Paul Otellini to Retire in May
Intel Corporation today announced that the company’s president and CEO, Paul Otellini, has decided to retire as an officer and director at the company’s annual stockholders’ meeting in May, starting an orderly leadership transition over the next six months. Otellini’s decision to retire will bring to a close a remarkable career of nearly 40 years of continuous service to the company and its stockholders.
“Paul Otellini has been a very strong leader, only the fifth CEO in the company’s great 45-year history, and one who has managed the company through challenging times and market transitions,” said Andy Bryant, chairman of the board. “The board is grateful for his innumerable contributions to the company and his distinguished tenure as CEO over the last eight years.”
“I’ve been privileged to lead one of the world’s greatest companies,” Otellini said. “After almost four decades with the company and eight years as CEO, it’s time to move on and transfer Intel’s helm to a new generation of leadership. I look forward to working with Andy, the board and the management team during the six-month transition period, and to being available as an advisor to management after retiring as CEO.”
The board of directors will conduct the process to choose Otellini’s successor and will consider internal and external candidates for the job.
In addition, the company also announced that the board has approved the promotion of three senior leaders to the position of executive vice president: Renee James, head of Intel’s software business; Brian Krzanich, chief operating officer and head of worldwide manufacturing; and Stacy Smith, chief financial officer and director of corporate strategy.
During Otellini’s tenure as CEO — from the second quarter of 2005 through the third quarter of 2012 — Intel:
Generated cash from operations of $107 billion
Made $23.5 billion in dividend payments
Increased the quarterly dividend 181 percent from $0.08 to $0.225
From the end of 2005 through the end of 2011, Intel achieved record revenue and net income. During this period, annual revenue grew from $38.8 billion to $54 billion, while annual earnings-per-share grew from $1.40 to $2.39.
In addition to financial performance, Intel, under Otellini’s leadership, achieved notable successes in areas of strategic importance. During this period, the company:
Transformed operations and the cost structure for long-term growth
Achieved breakthrough innovations, including High-K/Metal gate and now 3-D Tri-gate transistors; and dramatic improvement in energy efficiency of Intel processors
Reinvented the PC with Ultrabook™ devices
Greatly expanded business partnerships and made strategic acquisitions that expanded Intel’s presence in security, software and mobile communications
Delivered the first smartphones and tablets for sale with Intel inside
Grew the vast network of cloud-based computing built on Intel products

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Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work