Interesting letter

Transcript of Craig Barrett's Remarks
To Intel Employees Worldwide on Sept. 26
Posted Sept.26, 2001; WW39
From Worldwide Employee Communications
To hear an audio playback of Craig Barrett's remarks, you may call:
1-888-481-3045 or 1-617-801-9605. Passcode 105105. Barrett's remarks will
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information on obtaining a videotape, see below. Barrett's remarks last for
19 minutes. * * * Good morning. Thank you for taking time out of your
schedule to be with me today. The first thing I'd like to do is to
recognize all of your efforts and commitment through this past year. I
thought it was important that we get together today for a review of the
environment, our actions and what we as employees and shareholders of Intel
need to do going forward. The recent events have been truly extraordinary,
to say the least. In fact, I never thought I would be addressing you under
environmental conditions such as we face today. It's worthwhile taking a
quick look back over the last year to review what has happened and what we
have done. The slowdown in our industry started about a year ago when
Intel, as well as many other companies, missed their financial projections.
Initially sales in the computer industry declined, and shortly thereafter,
there was an abrupt downturn in the capital spending in the communications
industry. We also experienced a so-called dot.com meltdown, where many of
the internet companies failed in their attempt to create sustainable
business models. All of this left the major economies of the world in a
recessionary status. These facts have led to an overall weakness in our
industry with the analysts now predicting a decline in the integrated
circuit industry of something over 25 percent from last year. This is a
pretty dramatic decline. In fact, it's much bigger than the 1985 decline in
our industry, which was only about 15 percent, which is usually recognized
as the biggest recession in the integrated circuit industry in its history.
There has also been a dramatic decline in the telecom infrastructure area
where companies like Lucent, Nortel, Cisco, JDS Uniphase and others have
struggled. I think it's interesting or appropriate that we see how we've
been managing through this situation. With your help, we've been coping with
the slowdown in a variety of ways. First, we've reduced discretionary
spending. That's spending on everything from office supplies to travel and
entertainment to quarterly parties. We have done a very substantial job
there. We've lowered headcount by attrition and some local voluntary
separation programs. We announced about three quarters ago that we would
expect to reduce our headcount by about 5,000 employees by the end of this
year. We've been successful in this program, and I think we will exceed that
number of 5,000 by the end of the year. We've also closed and reduced our
investment in a number of business efforts. We've shut down efforts like
Pandesic, the joint venture with SAP, our effort in providing streaming
media service, some of our efforts in the health care area associated with
the internet. We've also reduced spending in a number of areas like IOS.
But not just in IOS. Really across the board we've cut down our spending in
terms of investment. We've also rededicated and refocused ourselves on what
we do well. And the real strength of Intel is the design and manufacture of
integrated circuits and our knowledge of digital computer and communication
architectures. So we've refocused our energies, in fact, in creating
products in those areas. We have continued to invest heavily in the future
with our R&D spending of something around $4 billion in this year and our
capital investments for manufacturing technology, which we started the year
with a goal of about $7.5 billion and we continue to have that goal going
forward. These actions have allowed us to remain profitable through the
first half of the year. And I want to really stress here that our revenues
for the first half of the year have dropped about 25 percent over the year
2000. And to be profitable with that magnitude of revenue drop, I think is a
significant event for us. Now, in the face of this difficult economic time,
we had the horrific terrorist acts of September 11th that further weakened
the U.S. economic outlook. And I want to talk about those actions for just a
moment. I'm very proud of the actions that Intel and our employees have
taken in response to these terrible acts. Our corporate donation of a
million dollars to the American Red Cross has been supplemented with an
additional $700,000 to date in employee contributions and Intel Foundation
matching grants. We have an operation going on in New York called Operation
Unity. It's our program to support individuals and corporations victimized
by the attack and to support the various relief agencies in New York that
are assisting the victims at ground zero. Many of you may have seen that we
have a program at the Javits Center where the search and rescue teams are
being headquartered by putting computers there and allowing the search and
rescue teams to have internet access to their families, everything from
computers to digital cameras, so the people can communicate with their
families by e-mail. We've done that. We've housed companies that were in
the World Trade Center area in our own facilities. We're working with
companies to rebuild their IT infrastructure. It's a major event, and many
of our individual employees have contributed time to this, many of our
employees contributed money, blood, bake sales, everything to try to help
those people who were impacted by this terrible action. We will continue to
update you on our actions on Circuit on a routine basis so you can know what
Intel is doing and how you might help going forward. As we cope with this
tragedy, I want to reiterate what has been said many times but I think what
is sometimes easy to overlook, and that is regardless of what a terrorist
group might do, individuals who might have the same ethnic or religious
background should not be assumed to be in agreement or held accountable for
those actions. We have a very diversified company, and we need to show
respect to all of our fellow employees, regardless of their ethnic
background. And I want to reiterate this: any harassment or derogatory
comments towards our Muslim or Arab employees is absolutely unacceptable.
The acts of September 11th have thrown the world into really an era of
uncertainty. There is uncertainty in the world's economies which were
already struggling before the 11th of September. And I think if you look at
the recent surveys on consumer confidence, especially here in the United
States, you'll see that there has been an additional impact following the
terrorists' actions. You'll see many of these projections about the future,
but I think the truth is no one knows exactly what is going to happen in Q4
of this year or 2002 and beyond. Most of those projections are just that.
They're made by people who did not, in fact, predict the slowdown that we're
in. And so to believe their projections about the future, especially a year
or so out, I think is a bit unrealistic at this time. Regardless of those
projections, moving forward in this troubled environment, we will be prudent
in our investments and our cost structure as we plan for the long term. I'm
confident that Intel's future is bright. We create and build the products
for a world that is embracing technology. The internet is going to continue
to build out as the vehicle for communications, commerce, information access
and entertainment. And our building blocks are the fundamental technology
that facilitate this internet buildout. We can resume growth as the world
economy stabilizes if we're successful in creating the products and
technology that make our customers successful. And I think this is really
the challenge for us, and we should take a moment to see what this means for
each and every one of us. First of all, we have to take advantages of our
strengths and capabilities going forward. One of our great strengths is, in
fact, our technical expertise, our research and development teams. Not only
do these teams create technology and new products for us, they also assist
the industry in setting standards and creating new technologies and new
businesses around the world. We have an additional strength in our
manufacturing area. We're a world leader in semiconductor manufacturing and
moving the technology forward. We are the first company that's aggressively
moving to .13-micron technology, the first company that's aggressively
moving to 300mm or 12-inch wafer manufacturing, which will give us a great
cost reduction going forward. An additional strength is really our sales
force, our customer service efforts. We have an international sales force.
We're really represented in every country around the world. It's important
to recognize we currently do over 60 percent of our business outside of the
United States, so having an international sales force that deals with
customers around the world is very important. And we have a very strong
infrastructure team, whether it's Information Technology or e-Business
Group, Finance, HR, Legal. All of those support elements will aid us going
forward. And lastly, we have a strength that many other companies don't
have in this particular time, and that is a very strong financial position.
We have approximately $10 billion in the bank, and we maintain that bank
account really for times just like this, difficult times, so that we can
continue with our R&D, investments and our capital spending when the
economic surroundings, the economic environment is very difficult. These
things are what have made us successful in the past, and they will do so
again in the future if we use them wisely. Our challenge now I think is not
so much to search for a new strategy. I'm very comfortable with our
strategy. I think our challenge is to really execute on our current business
plans. We have to do that recognizing that the economic environment is
difficult, but also recognizing that we have the people, the capabilities
and the focus that will bring success going forward. I want to reiterate
again, the key to this will be new products and new technologies. We know
that technology continues to march forward, even during economic slowdowns
like we're seeing today. And we know you can't save your way out of a
recession. The only way you can emerge stronger is on the back of new
products and new technologies that bring value to your customers. And this
is what Intel is all about. This year, we embarked on a program which we've
referred to as Operational Excellence. And the concept behind this plan was
really exquisite performance with Intel values, with the results being
flawless introduction of new products into the marketplace. We've had some
great examples of success in this area. They really act as benchmarks for
how we must perform in the future. And I want to take just a moment to
review a few of those examples. If you look at the Intel Architecture
Group, they have a program called Project Breakaway, which is really the
acceleration of the Pentium® 4 microprocessor family and its surrounding
chipsets into the marketplace. It's also recently been expanded into the
mobile marketplace. This project is really to accelerate the introduction of
technology into the marketplace, aggressively make the transition from
Pentium® III processors to Pentium 4 processors. A very excellent program,
well executed, well accepted by the marketplace and giving strong momentum
to the Pentium 4 processor family. In our communications group, the work
we've done on gigabit ethernet connection is also a major success. Getting
new products out, aggressively getting design wins with the major computer
customers, really giving us leadership in the gigabit ethernet area to
follow on a leadership that we had in the 10- and 100-megabit ethernet
connectors in the past. In WCCG, the efforts we've had in our .18-micron
flash technology I think are a good example of Operational Excellence. We're
a technology leader in the flash marketplace. We're a volume leader in the
flash marketplace. We have a very, very substantial lead over the
competition in moving our flash products to .18-micron. We intend to
maintain that technology and volume leadership. And really the challenge in
the flash area is really to mirror what we've been doing in the
microprocessor marketplace with a Breakaway Program here to really break
away from the competition and increase our lead. In our manufacturing area,
I've already mentioned that we're the leader in .13-micron, the next
generation of manufacturing technology. That program is ahead of schedule
from a volume standpoint, ahead of schedule from a yield standpoint. We're
very happy with those results. And lastly, if you look at some of the
internal structures, not only internal at Intel but internal between Intel
and our customers, the internet applications that drive our business
transactions, we're a leader in this space. Very aggressive driven by Sandra
Morris and her team and many other support organizations. I wanted to give
you these examples. These are examples of where we are winning, where we are
truly demonstrating Operational Excellence. The issue is we need these and
many, many more to win across the board. We need these and many, many more
to really emerge from this downturn in a stronger position. We need superb
products, superb manufacturing, superb sales and superb customer support. We
should expect and accept nothing less. Our success here will depend much
less on what the economy does or what our competition does than on what we
do and how we do it. And that's what Operational Excellence is really all
about. The performance of every individual, every group, is our collective
responsibility. It's not someone else's issue. Everyone needs to commit and
stay committed to performing with excellence. I want to now talk a little
bit about the financial structure of Intel and what we've been doing. And I
know there have been many questions about layoffs and pay cuts. In fact, I
think my scheduling of this meeting seemed to have heightened concern over
these issues. I want to reiterate that I'm not here today to announce any
new actions. We do have ongoing programs that will likely continue. We've
been reducing our headcount by attrition, redeployment and some local
Voluntary Separation Programs. This will continue until business recovers.
It is very important to note here that our current headcount is some 20,000
employees higher than it was two years ago when our revenues were about the
same level as today. We clearly need revenue growth to support our current
headcount, and it doesn't take a rocket scientist to do the mathematics
here. In fact, if we have 20,000 more employees on the same revenue base,
you can't have profitability matching where we were two years ago, unless we
can grow our revenue. And if the economy and our business begins to recover
in 2002, then I believe we can make it through these difficult times without
any corporate-wide actions. I also want to remind everyone with regard to
pay cuts that we do have a variable comp program already in action. And that
variable comp program is designed to cut costs during poor economic times.
Our cash compensation program consists of the three things I'm sure you're
all aware: base salary, our Employee Cash Bonus Program and our Employee
Bonus. The latter two are profit-dependent and will be cut this year
compared to last, as our profitability has obviously declined. For example,
the highest-paid employees around Intel this year will see about a
50-percent reduction in their cash compensation compared to last year, and
the lowest-paid employees will see about a 7- or 8-percent reduction. This
is exactly the way this system was designed to work, and right now I see no
need to supplement it with any other pay cuts. Going forward, let me paint
a picture for you. We have a strong strategy focusing on four architectures
for our different businesses. You know what those architectures are: client
architectures, server architectures, communications architectures for
hand-held devices and network processing architectures for our networking
activities. We've committed the research and development dollars and the
capital dollars to design and deliver leading edge technology products to
the market in each of those four architecture areas. Our collective job is
to make sure these products meet the market needs, that we get the key
design wins, and then we provide superior manufacturing technology, and
perhaps most of all that we provide great service to our customers. This is
how we've been successful in the past. This is how we'll be successful in
the future. It really requires us all to act together as a team. After all,
we do deliver the most complicated products that human beings have ever
designed and built. And no one individual or one division can do it all
themselves. Together we can be successful if we operate with detailed
plans, aligned priorities and superb execution. This is our recipe for
success, this is what we should spend our time worrying about, and this is
what we should translate into action. It won't be easy, but I'm comfortable
and confident that we can succeed together. I want to thank you again for
your time today. Now let's all get back to work and make it happen. Thank
you. Craig Barrett President and CEO To obtain a VHS videotape of Barrett's
comments: Call the Intel Library at iNet 8-552-4636 or 1-480-552-4636, or
visit the Intel Library <http://circuit.intel.com/Library/>(from
Circuit>Library) and choose "Submit a Request." Due to likely high demand,
tape delivery may take up to two weeks.