The Man with a Plan

So American manufacturing is on its knees, is it? Try telling that to Paul Otellini. Despite his company’s global footprint, the Intel CEO believes the US is where it’s at when it comes to innovation – and is putting money down to prove it.

As someone who’s spent his working life championing the predictability of Moore’s Law – the theory that computing power will double every two years while halving in cost first observed by Intel’s founder Gordon Moore in 1965 – the irony of operating in an economic environment that is distinctly unpredictable is not lost on Paul Otellini. “Absolutely nothing about the future is inevitable or guaranteed,” says Intel’s current chief executive with a wry smile. “Not jobs, not leadership, not our standard of living. No one is confident predicting what the next quarter is like, yet alone the next year. Our entire country is experiencing anxiety about the future.”

And, like every other business, Intel is feeling the effects of that uncertainty. Revenues at the Santa Clara, California-based company dropped 23 percent in the last quarter due to a contraction in the market for PCs. Businesses are putting off upgrading to new computers until the economy and their finances improve, while consumers – singed by layoffs and falling home prices and stock portfolios – have scaled back their spending as well. That has prompted PC makers to try and save money by burning through existing chip inventories rather than buying new ones – and has hit the semiconductor industry hard.

If he’s rattled, Otellini’s not showing it. “Let’s be honest, when we face a crisis our habit is to hunker down and hold fast to what we have and what we know: the jobs, the businesses, the institutions, and the ways of life we are familiar with and don’t want to lose,” he explains. “It is a perfectly understandable reaction when uncertainty becomes a part of our lives.”

And while he’s obviously not enjoying the tough decisions that come with the current operating environment – Intel recently had to close a number of assembly and production facilities, affecting between 5000-6000 employees worldwide – he does seem energized by the opportunity this downturn offers. “Our institutions and paradigms have become unfrozen by this economic crisis, and we have a once in a lifetime opportunity to re-shape how things will look and behave as growth resumes,” he says. “This is riskier. There is more uncertainty. It is less comforting. But it is the only proven path to pull out of bad times. If we want to see a return of American prosperity, we have no other choice than to invest in creating the future, not merely preserving the past.”

Innovation rules, ok
And unlike making predictions on the outlook for the economy, the concept of creating the future is something Otellini can talk about with some confidence. The processors his company builds have provided the computing power behind the rapid technological innovations witnessed in the last half-century, and enabled the phenomenal advances in communications, mobility, convenience and efficiency we now all take for granted. Without the performance improvements offered by Intel chips, the world would be a very different place indeed – and Otellini sees the future as ripe with further exciting opportunities.

“Looking ahead, it’s clear that we are living in one of the most remarkable periods of creativity and possibility,” he says. “From biomedicine to nanotechnology, the world of life science is destined to change the way we live within our lifetimes. From wind turbines to solar panels, we are at the very beginning of transforming how we generate and consume energy. From broadband to microprocessors, we are connecting the world in ways that were unimaginable just a few years ago. Our challenge is not to just enjoy the benefits of the discoveries so far; our obligation is to invest to take them further.”

It is a subject that Otellini is passionate about – and it dovetails with his desire to see the US at the forefront of innovation. Despite its global footprint (the company generates more than 75 percent of its sales overseas), Intel carries out roughly 75 percent of its semiconductor manufacturing in the US, and approximately 75 percent of the company’s R&D spending and capital investments take place domestically. And contrary to conventional wisdom, Otellini believes that it is possible to retain a vibrant manufacturing economy here in the United States – provided the country focuses on industries of the future in which it can command a competitive advantage.

“If we are committed to investing in ideas to improve – not just maintain – what we have and what we know, the United States will do more than just recover from this recession,” he asserts. “We will emerge as a competitive, global powerhouse. This is the essential stimulus plan we need; not one that attempts to shore up the status quo or delay the inevitable changes needed.”

Next generation technology
Since 2002, Otellini has been putting his company’s money where its mouth is, spending more than $50 billion on US-based plants, equipment and R&D that support over 45,000 American high-tech jobs. And as further proof of the its commitment to innovation, he recently announced a massive $7 billion investment in advanced manufacturing facilities for its state-of-the-art 32-nanometer manufacturing technology, which will be used to build faster, smaller chips that consume less energy. The good news? Intel’s investment will be made at existing manufacturing sites in Oregon, Arizona and New Mexico and support approximately 7000 jobs.

“These factories – we call them fabs – will produce the most advanced computer technology in the world,” he explains. “They are remarkable sites of innovation, and we believe that they will produce chips that will transform what is possible. They are platforms for future creativity.” In addition, the factories also support high-wage, high-tech manufacturing jobs that are the economic engines of the states in which they are located. The investment will also support thousands of contract jobs for technicians and construction workers.

Accelerating its production of 32nm processors, codenamed Westmere, is a bold move for Intel – particularly given the current economic climate. The company only started shipping its 45nm chips just over a year ago, and as recently as November announced the release of a desktop version of the 45nm chip called Core i7. Now, however, Intel is all but ditching 45nm production and abandoning whole processor families it had planned for this year. “De-prioritizing” the technology is how Intel executive Steve Smith described the step in a recent briefing, and it accompanies the firm’s decision to sell-off existing chip stock by slashing prices in an attempt to try and coax reluctant consumers to open their wallets.

Analysts see the move as a one-two punch combination aimed at increasing the company’s lead over rival AMD. The first dual-core 32-nm chips will be in production later this year, and Intel also plans to release 32-nm quad-core chips in early 2010. By comparison, AMD won’t have a desktop chip comparable to the 45nm Core i7 until next year, and its 32nm chips are not expected until 2011. “By transitioning to 32nm aggressively Intel is pressing its advantage competitively,” says Shane Rau, an analyst with research firm IDC. “It’s a form of stimulus package for the worldwide demand for processors. Intel is showing that it can invest through the downturn and be ready when the demand returns.”

Investing in the future
It all comes back to having the right structures in place to weather the current storm and position for the upturn, taking what Otellini calls “the long look ahead” – a conscious effort to remain the global leader. Because as he points out, staying at the top of your game won’t just happen on its own.

“While it is easy to talk about investing in future technologies, in practice, it can be a frustrating process,” he says. “For example, we now know an enormous amount about alternative sources of energy, but we still have a long way to go to find a way to power a city efficiently using wind and solar power, yet alone a single car running all day on safe battery power. Nearly all American schools are wired for broadband, but finding a way to use digital content and emerging social networks to craft young minds is not yet a well-understood teaching paradigm. And we all know that technology has the potential to revolutionize the way that healthcare is delivered, yet we cannot even agree on common standards for electronic medical records.”

He concedes that solving these problems will be challenging – even exasperating – but believes that the act of pursuing such goals has the potential to improve us. “That is the critical point,” he says. “There is an old adage in sports: you can’t win if you don’t show up. The same is true for these grand challenges of our time.”

The answer, according to Otellini, lies in supporting a true culture of investment – one that begins with a common understanding that good investments lead to ideas and discovery, which spawn new businesses, that in turn create new jobs and ultimately leads to wealth creation and higher standards of living. “This is what investment means,” he explains. “Putting capital to work not just for the new products you will produce, but for creating the capacity for innovation we haven’t yet imagined. If investment is going to make a difference, it has to lay the groundwork for the future.”

And this is what Intel aims to do by shifting to a more efficient, more advanced manufacturing process. It is predicting chips produced by the new fabs could substantially lower development costs for manufacturers struggling to outdo each other with cutting-edge TVs, phones and other devices. Otellini hopes that the chips will become “the basic building blocks of the digital world, generating economic returns far beyond our industry”.

The pace of discovery
Otellini sees this pace of discovery continuing for the foreseeable future, and believes some of today’s most interesting breakthroughs in technology are just the tip of the iceberg when it comes to what will be possible in the world of tomorrow. Powerful computing and communications devices that deliver the full internet and fit in your pocket. Computers so inexpensive that the poorest villages in Africa can have them in their classrooms. High-tech sensors that replace the role of full-time nurses caring for the elderly. Smart networks of microprocessors, software and sensors that will eventually re-engineer the electrical grid. Some of these developments are so close to becoming reality that we can almost touch them; but what really excites Otellini is imagining what such breakthroughs will lead to given the right environment and continued investment.

“The truth about technology is that it is constantly building on ideas that came before it,” he says. “This is a critical distinction if we are going to think about investment in the right way. None of the breakthroughs I’ve just mentioned are one-off products. They are platforms on which thousands of other innovations will be built. That is the model that drives us at Intel. It is the model for the technology industry. And it ought to be the focus of what we do when we talk about stimulating the economy and remaining competitive as a country.”

More than anything, Otellini is passionate about retaining America’s status as a hotbed for innovation and technological excellence. He’s realistic enough to recognize that innovation often comes from the most surprising outlets (“companies we’ve never heard of, or industries that haven’t been invented yet, in places we least expect”) and that global competition only enhances this uncertainty. Nonetheless, he maintains that creating the future is an area where American business and entrepreneurialism has a stellar track record.

“As a global company, we have made a conscious decision to expand these factories here because we believe that investing in the future of American discovery isn’t just the right thing to do – it is an essential business decision if we want the United States to continue to be the engine of new ideas and technical leadership,” he concludes. “Yes, it’s important to deal with the realities and inefficiencies of today. But it is essential for the well being of all of us that we make a collective investment in tomorrow.”

Energy-efficient transistors
Nearly 40 years ago, in 1971, Intel’s first processor had just 2300 transistors and sold for $30. In 2009, you will soon be able to get 1,000,000x the transistors for not much more. Given inflation, today that 4004 would cost over $120. And if you multiply that by a million (for one million times the number of transistors), you now get the equivalent of $120 million worth of transistors in one microprocessor.

Each of the 45nm transistors in the eight-core Intel Xeon processor uses 1/7000th the power of the original 4004 transistors that Intel was manufacturing in 1971 – quite a statement in energy efficiency. If the fuel efficiency of automobiles had improved at the same rate, a car would get 200,000 miles per gallon. You could put one gallon in your tank when you first purchase a car and never have to stop at a gas station again for the life of the car, and still have plenty of fuel to spare. And each transistor today takes up 1/40,000th the area of the transistors in the 4004. With the advent of 32nm technology this year, expect those numbers to improve even further in 2009. 

Inside Intel
With one million square feet and more than 1000 employees, Fab 32 in Arizona is one of Intel’s most environmentally friendly factories and manufactures the most energy-efficient processors the company has ever made.

Miles of tracks make up the automated handling system that runs along the ceiling of Fab 32. Wafers are transported along these tracks from tool to tool as they go through the manufacturing process.

Fab 32 has 184,000 square feet of clean room space, equal to three US football fields. Clean air continuously flows through the ceiling and floor. All of the air in the clean room is replaced several times every minute.

The thousands of people who work in Intel cleanrooms all wear ‘bunny suits’ to protect the chips from human particles such as skin flakes or hair. A bunny suit is made from a unique non-linting, anti-static fabric.

The technology used in Intel’s manufacturing process builds chip circuitry 32nm (32/billionth of a meter or about 1/millionth of an inch) across – incredibly small, atomic level structures.

By the numbers
$37.6 billion Total company revenues for 2008
$7 billion Investment in US manufacturing over next two years
75 percent Proportion of R&D spending and capital investments made in US
45,000 Number of workers employed in US-based facilities
7000 Jobs expected to be created by US manufacturing investment