Inside Intel

By Cliff Edwards

updated 5:26 p.m. ET Dec. 30, 2005

Even the gentle clinking of silverware stopped dead. Andrew S. Grove, the revered former Intel Corp. chief executive and now a senior adviser, had stepped up to the microphone in a hotel ballroom down the street from Intel's Santa Clara, Calif.) headquarters, preparing to respond to a startling presentation by new Chief Marketing Officer Eric B. Kim. All too familiar with Grove's legendary wrath, many of the 300 top managers at the Oct. 20 gathering tensed in their seats as they waited for a tongue-lashing of epic proportions. "No one knew what to think," recalls one attendee.

The reason? Kim's plan, cooked up with new CEO Paul S. Otellini, was a sharp departure from the company Grove had built. Essentially, they were proposing to blow up Intel's brand, the fifth-best-known in the world. As Otellini looked on from a front table, Kim declared that Intel must "clear out the cobwebs" and kill off many Grove-era creations. Intel Inside? Dump it, he said. The Pentium brand? Stale. The widely recognized dropped "e" in Intel's corporate logo? A relic.

Grove's deep baritone, sharpened by the accent of his native Hungary, pierced the expectant silence. But instead of smiting the Philistines, Intel's patriarch sprinkled holy water on Otellini's plan. He understood that it was no repudiation of him, but rather a recognition that times had changed — and that Intel needed to change with them. "I want to say," he boomed, "that this program strikes me as one of the best manifestations incorporating Intel values of risk-taking, discipline, and results orientation I have ever seen here. I, for one, fully support it."

As executives rose to greet him with relieved applause, the moment signaled an historic shift for one of the world's most powerful technology companies. The iconic Intel would leave the Grove era behind and head into uncharted territory. Otellini will unveil the new strategy and new products on Jan. 5, at the Consumer Electronics Show in Las Vegas. Central to the effort will be the first new corporate logo in more than three decades and a $2.5 billion advertising and marketing blitz, BusinessWeek has learned.

The changes go far deeper than the company's brand. Under Grove and successor Craig R. Barrett, Intel thrived by concentrating on the microprocessors that power personal computers. By narrowing the company's focus, the duo buried the competition. They invested billions in hyperproductive plants that could crank out more processors in a day than some rivals did in a year. Meanwhile, they helped give life to the Information Age, with ever-faster, more powerful chips.

Otellini is tossing out the old model. Instead of remaining focused on PCs, he's pushing Intel to play a key technological role in a half-dozen fields, including consumer electronics, wireless communications, and health care. And rather than just microprocessors, he wants Intel to create all kinds of chips, as well as software, and then meld them together into what he calls "platforms." The idea is to power innovation from the living room to the emergency room. "This is the right thing for our company, and to some extent the industry," he says. "All of us want [technology] to be more powerful and to be simpler, to do stuff for us without us having to think about it."

Why the shift? Stark necessity. PC growth is slowing, even as cell phones and handheld devices compete for the numero uno spot in people's lives. Otellini must reinvent Intel — or face a future of creaky maturity. Revenue growth has averaged 13% for the past three years, but analysts figure Intel will see only 7% growth in 2006, to $42.2 billion. Meantime, profits, which have surged an average 40% annually over the past three years, are expected to rise a measly 5%, to $9.5 billion. "It's a race for Intel and other companies to figure out how fast is revenue going to come from emerging areas before PC margins begin to come down sharply," says Ragu Gurumurthy, head of technology practice for Boston tech consultancy Adventis Corp.

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