In the Company of Giants

by Rama Dev Jager

  This was 1985—before we introduced the 386. And the microprocessor business was much much less than Intel’s memory business at the time. So, everything was very murky, and it wasn’t an obvious decision.

  You asked about when IBM adopted our product. I didn’t think it was colossally important at that time. And, I maintain that nobody at Intel did.

  But, here’s the rewriting of history: We just had the ten-year anniversary of the PC a few years ago, and the Intel newspaper want-

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  ed to interview a bunch of people about it. All of a sudden everybody remembered what a big celebration our microprocessor was at the time it was introduced. Well, I must have been on vacation. I don’t remember any celebrations. I don’t remember anything like that. It was good, but keep in mind that IBM thought the lifetime production of PCs was 200,000! IBM thought that the projections were too optimistic in the first place. Why would we have been more knowledgeable about how successful IBM was going be with the PC than IBM?

  So, it was not a big deal at the time. What was a big deal was then they came around a year later, unrelated to the PC, and wanted to buy into Intel.

  And they actually did take an ownership stake.

  We struggled with that, whether we should let them or not. For some reason, we turned it into an existential debate: Should we or should we not? Finally we did, and the whole thing turned out to be a non-event. They never did anything related to that investment with us and they sold our stock. It was a joke—“a long-term investment” that a few years later they sold because the stock went up and they wanted to bail-out their earnings. So it turned out to be nothing. But at the time it was, “Oh, my God!” All of a sudden I was flying to New York and was meeting with the Chairman of IBM for a big announcement.

  It was a big deal at the time, and yet turned out to be nothing. That was in ’82.

  But, the big milestone was the DRAM case [shifting from DRAMs to microprocessors]. That was the crisis that shaped the Intel of today. Just about everybody in management thought it was the end. That’s where the paranoia and all that stuff came from. You can’t go very far at Intel without running into people who went through it.

  My father worked at Intel during that time, at the Santa Cruz plant, which was shut down.

  What did he do?

  I don’t know. When you’re young, you never know what your dad does.

  I had no idea.

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  So, when you decided to lay off a third of the workforce, obviously that must have been difficult. How does such a decision get made?

  Well, we never laid off a third of the workforce in one fell swoop. We laid them off ten percent at a time, three times. That’s not what we wanted to do. I have this saying: you never cut enough soon enough.

  At the time, Gordon said, “Let’s make sure we cut enough so we can take care of all of this in one layoff.” And, I said sure.

  We tried to do that. But, we had just barely finished the layoffs, and it became clear that our business had sunk some more. Nobody ever forecasts that revenues will go straight down. Everybody thinks the low point has been reached.

  So, we went through excruciating detail figuring out who we needed to let go. It wasn’t enough so we kept doing it until finally it was enough. The transitions that we talked about earlier made us a company: employees, organizations, doing things correctly, and doing things well. But when we had to cut people back—we did that very seriously too—from the standpoint of doing it right from the employees’ standpoint. As right as you can do it. Did your father get laid off?

  Yes.

  Then this will be a weird conversation. The prevailing industry practice at that time was to cut back on seniority—where the most recently hired person goes first. The justification was that, unless you cut back that way, you gave unions an opportunity to come in and say, “We’re going to make you guys do it right.” I took a very strong exception to that. We had some layoffs in the ’70s—also pretty big for a small firm—and the personnel people wanted it done in a very organized way. I really leaned towards us laying off on the basis of merit, which we didn’t. We gave it lip service but it was too complicated. By the time this ’85 situation came up, we went to the point where we took people’s performance reviews and systematically tabulated the ratings of the performance reviews and all that stuff. We did it on the basis of measurable, documentable performance. That was the compromise. We were going to do it on the basis of performance, but it had to be objective enough, so that if somebody questioned it later, you knew you had a well-defined system. We used seniority to break the ties. We spent incredible time working on it. I remember the first layoff—it was in Oregon. I went through the list name by name by name to make sure. There were hundreds of names. Most of

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  them I didn’t know, but I wanted to make sure that we were really doing what we said we would do. We took layoffs pretty seriously.

  In 1982 we had a bump in our business and everybody else was laying people off. Luckily we thought it was just going to be a blip. We turned out to be right. We decided to stop hiring and did all kinds of weird things like making people work an extra ten hours a week for the

  “125-percent solution.” We really held expenses down and stretched our employees’ days longer. Our people did that literally for six months. Then we gave them a big party. Then we had another blip and we cut pay by 10 percent. So, we tried a bunch of different means.

  We were very anti-layoff, because in those days people laid off left and right. Management didn’t give it a second thought. We were trying to build a solution—you can’t treat your people like an expense item. We really tried [not to have layoffs], but in 1985, it got beyond that. Actually, I didn’t agonize too much over the Santa Cruz plant.

  What I really agonized over was Barbados, an assembly plant that largely built memories. There was nothing in Barbados but us. It was a resort. You would either go fold sheets at the resort or go work at Intel. It was a very stupid thing for us to put a plant there. It was very very difficult to run, but by 1985 it was a good plant. There was no history of any industrial undertaking on the entire island of Barbados, so we had to teach everybody. We went through plant manager after plant manager until we finally got it right and the plant was good. They were so proud. It was a high profile thing.

  The layoffs were a major part of our maturation as a company.

  So, given the choice between hiring people and laying them off in bad times versus not hiring enough people and making them work at greater expense to the company, which would you do?

  The second. I have a very strong personal dictate that we as a company not lay people off again like we did before. The memory of the incident remains.

  Perhaps you’ll never have to make that type of decision again because of the industry you’re in. It seems like you’re in a pretty nice industry.

  Do you ever see a downturn in the semiconductor industry?

  Well, it did go down in ’85. There were all kinds of arguments about the semiconductor trade agreement. We were in bad shape as an industry then. There was no PC industry to keep us up. I don’t think semiconductors is a nice industry. I don’t think it’s a cushy industry.

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  It’s a very tough industry. Look at the people that we compete against. You don’t know the meaning of competition until you’ve dealt with a Samsung. We have had incredibly dedicated competitors.

  So, which one of your competitors in particular concerns you the most?

  Nobody in particular because competition is not the issue in our case. It’s in navigating change from the fairly well-defined PC industry into the network computing industry and it’s very, very complex. I think probably my biggest fear is the process of navigating into the next stage of computing. Whenever microprocessor power becomes less important than before, that means a loss of bus
iness for us, much more so than a loss of business to a competitor. Competitors are much easier, this threat is just kind of ambiguous. There exists a rising tide that controls the industry. Competitors either matter or don’t matter depending on that tide.

  Speaking of this tide, then, do you envision the idea of just an empty set-top box with a network connection?

  No, I don’t see that, but what I do see is the need to develop the type of application that uses the hidden, latent microprocessor power. At home, which is where all the talk about appliances are, the bench-mark set by television, the visualization of television is what people expect in terms of processing power. So we’re going to need processing power, but that’s only half of our business. The other half is with businesses. So we have to take the initiative on stimulating applications, visually compelling applications, business applications. That’s our job, but it’s not about competitors.

  Or, increase demand.

  Right. We have to generate our own demand.

  Let’s switch gears a little here. Why do you teach at Stanford?

  Because I enjoy it. It’s very simple. I’ve always liked teaching. I taught both during my engineering days and then during the period of time when Intel made the transition into more systematic management. I started teaching management practices at Intel, out of which came High Output Management.

  I like exchanges. Harvard did a case on Intel. I became aware of

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  it, and I talked to the class. I liked that. I wasn’t going to go back and forth to Harvard each year to teach the case so I approached Stanford and really liked it. It’s a laboratory to try new ideas. Cases allow you to think through a particular industry much more. The process ended up being very helpful to me in understanding the interaction of the internet, the World Wide Web and the like. I didn’t really learn any new facts about it, but preparing the case and going to class really helped. That’s a secondary reason.

  Given all of your extra-Intel activities, such as writing a management column, and teaching a course at Stanford, what kind of hours does the CEO of Intel put in? Do you work less or more than before?

  It hasn’t really changed over time. I spend a lot of time thinking about the industry. Our industry has an impact on every other industry. Telecommunications—I used to pay no attention whatsoever to the telecommunications industry. It has now become vitally significant. International events have become vitally significant. Now the media industry is where the telecommunications industry was a few years ago—on the fringes—it gets increasingly significant. We capture people who are in the media and going into digital technology.

  We capture their efforts on PCs. That’s our business.

  So, I have to read a third of the newspaper, even though it doesn’t mention Intel or the article doesn’t have anything directly to do with Intel. In that context I think a lot about the world. Not so much about Intel, per se. So what are my days like? I start at 8 o’clock, end at 7. I’ve got another hour of work that I do at home.

  Seven days a week?

  No, five days a week. And over the weekend, I have maybe three to five hours of work. Not administrative things, but really the longer things that I didn’t do during the week. I don’t do a lot of administrative work anymore. Craig Barrett [President of Intel] does that. I figured I’d written all the performance reviews that I needed to write and I washed my hands of all of that some years ago. I really do what I want to do, but what I want to do adds up to be more than I would like it to be. This is a problem. I will be sixty years old this year and soon I’ll probably have to stop. Ten years ago, I said I would retire at age 55, and I don’t want to hang on too long.

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  Today the semiconductor industry is not one that a young Ph.D. can get into and start a company on a hope and a dime.

  Not on a dime.

  Many dimes. If you were starting over today, what industry would you recommend to young people trying to start a company? Would it be in semiconductors?

  First a point about startups. I can’t look at a startup as an end result.

  A startup to me is a means to achieve an end. A lot of your business school friends come up to me and say, “Hey, Andy, I want to do a startup. I want to do an Intel. So, what should it be?”

  It just doesn’t work that way. Instead, you should first figure out that you want to do, say, semiconductor memory. You want to do semiconductor memory so bad that it hurts, and you can’t do it where you are. So you do it within a startup. Otherwise, it’s such an ass-backwards way. People who did it exactly like that saw a moun-tain of opportunities that weren’t there.

  If the question is what field would I go into as a young person today I would probably get into genetics or biotechnology. I know very little about it, but it fascinates me from the following standpoint: it is the new frontier that can use computing power and increasingly even semiconductor technology in terms of preparing and building genes. It is in converging technologies which I always liked.

  I see the possibility of cross-fertilization of genetics or biotech with information technology, which is very advanced and very powerful. Computational tools are very powerful. The concepts are very powerful. Software designs are very advanced. Semiconductor technology is very advanced. I’d apply it to a field like genetics which is still very, very raw. It’s kind of like the semiconductor industry was in the 1950s. So I would prefer to go there. If I had to go back to school again, I would get a double degree in computer science and genetics.

  I don’t exactly know what I would do with that, but it would be a combination of those two subjects.

  You wrote an article for the Wall Street Journal about the importance of immigrants to this country’s future. How do you think immigrants have helped Intel?

  Fifty percent of our Santa Clara technical staff is Asian. There’s no question about it. The degree is not as high in the other locations, in

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  Oregon it is probably 20 percent. Our company is interwoven. The man who discovered EPROMs is Israeli.

  It’s very interesting that you mentioned the article. I wrote a reg-ular management column. I never got responses to any of my columns. But the response to this one article was incredible—e-mail after e-mail. I had a lot of feedback. In one message I got a one liner, and in another, three pages of philosophizing.

  Why?

  I don’t even know. Are you asking a larger question?

  The political thinking in the air today. The Gingrich approach to things. Proposition 187. It has become an atmosphere of intolerance and, although it may be just a minority standpoint, this attitude seems to be more prevalent than before.

  It’s incredible to me that with the monumental problems that we have financially as a country, there are people who target welfare mothers. It rubs me the wrong way. It really does. I had a very positive experience as an immigrant here. Nobody has ever given me a hard time. Nobody has begrudged me anything. It’s never been an issue. I’ve become a rabid American as a result of it. I haven’t gone back to Hungary at all. I have no love lost for my origins. But I hate seeing this kind of thing developing. You know every trend in this country starts in California. I can’t say that it’s a major trend yet, but it’s enough of a trend that California has Proposition 187. Think about it.

  Is there anything you can do to change that?

  Probably the most important thing I can do is to run Intel in a good way. Intel’s a big community, you know. There’s very little I can do outside that’s going to affect a community of forty-five thousand people. You can take that number and multiply it by four for the number of people that are affected in terms of employees, families, and customers. What I do at work, in some ways, affects hundreds of thousands of people. That’s pretty big.

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  Electronic Arts/3DO

  CREATIVITY, THE ULTIMATE

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  By 1985 Atari was in financial ruin. ActiVision’s once popular game system was passé and hundreds of developers worked in a flea market environment desperately trying to sell their games to a customer, and market, that didn’t exist.

  Prudence would judge it a dumb place to start a video game cartridge company. Trip Hawkins did just that and clawed his way past 135 other competitors to make Electronic Arts the undisputed leader in video game software development.

  By all accounts, Hawkins has for many years been both an entrepreneur and game aficionado. As a Harvard undergradu-ate he created a fantasy football game that nonetheless folded, and with it his father’s seed capital of $5,000. Apparently unfazed, Hawkins immersed himself in the study of games, graduating with a custom degree in strategy and applied game theory. His thesis: a computer model for World War III.

  Hawkins came across Mike Markkula while researching the video game market as a Stanford MBA student. Markkula, looking to build a solid team for his startup venture, Apple Computer, persuaded Hawkins to join after graduating from 175

  Copyright 1997 Rama D. Jagar and Rafael Ortiz. Click Here for Terms of Use.

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  business school. As employee number 68, his charter was to gain entry for Apple products in the business market.

  Despite Apple’s commercial success, Hawkins chafed and left the company in 1982 to start up his own as soon as his $7.5 million worth of stock options vested.

  Taking good measure of the imploding game industry, Hawkins set out to create a company different from the one-hit wonders that pervaded the marketplace. His company, Electronic Arts, borrowed from the Hollywood studio model of media production: project managers were called producers and software game programmers were called artists and given the tools, respect, and freedom to work as the talented, creative people they were.

  A stream of successful products spewed forth. Though the market was cluttered with dozens of different hardware standards, two emerged to dominate the industry: Nintendo and Sega. Hawkins bet heavily on the latter and reaped the benefits. Electronic Arts boasts yearly revenues in excess of $600