November 11, 2004 8:20 AM PST

Intel board backs Otellini as CEO

Intel's board voted Thursday to elevate Paul Otellini from president to CEO in May as the chipmaker grapples with a number of changes.

Otellini, 54, will succeed Craig Barrett, 65, Intel's fourth CEO, who said earlier this year that he will step down as Intel's top executive. Otellini, who is also Intel's chief operating officer, has been expected to become CEO following Barrett's retirement.

Intel's next CEO,
Paul Otellini

Although Otellini is deeply involved in Intel's day-to-day operations and its product plans, he'll have his work cut out for him during 2005. The next year or so is expected to be a period of transitions for the company's products and management.

Intel, which claims more than 80 percent of the PC processor market and does a huge business in PC chipsets and motherboards, will release a number of major new products in 2005 and attempt to erase a series of missteps in 2004. Intel has already begun a shift to place much less emphasis on processor speeds and instead emphasize overall performance.

Next year will be the real test of the strategy, as Intel will begin a move to dual-core processors, which will incorporate two processor cores into one chip. The company will also begin to deliver more feature-laden single-core chips.

"We're moving toward platform development (designing substantial portions of computer systems), digital home, digital office, dual core products, essentially the silicon foundation for the next generation of products," he said in a phone interview.

Though Intel is getting into new markets, he added that, culturally, things won't change much at the company, a statement he and other Intel executives have stressed for the past few years.

Over the years, Intel has moved from simply stamping out and selling parts to orchestrating entire PC platforms around its processors, such as Centrino for notebooks. These platforms often involve developing new features, such as high-end audio processing, and writing software. Intel has thus expanded its software group significantly.

Intel's CEO,
Craig Barrett

Otellini has, in one way or another, been behind many of the changes that are preparing Intel for the 2005 transition. For one, he made the decision to cancel Intel's delayed 4GHz Pentium 4 and instead to bring out Pentium 4s with more performance-enhancing cache memory in early 2005. Otellini was also the executive to first champion the company's dual-core approach to the public in May.

Continuing to push rapid clock-speed increases would eventually increase processors' heat and power consumption to impractical levels for everyday PCs, Otellini has said.

As CEO, Otellini is also likely to turn his attention to getting back on track Intel's chronic money-losing Communications Group, which includes its flash memory business and chips for networking and communications gear.

Otellini, however, defended Intel's progress in this area. A few years ago, Intel had only one communication product: Ethernet. Now it sells chips for a variety of functions.

In addition, Otellini is likely to face tough decisions related to manufacturing. The company, which was caught off guard in the third quarter by lower-than-expected demand and excess inventory among its customers, said it will cut back on the number of chips it manufactures during the rest of the year. Eventually, if demand does not pick up, Intel will have to make decisions about what to do with some of its older factories.

Otellini, who joined Intel in 1974, said in a recent interview that he hopes his becoming CEO won't alter much about Intel or its culture.

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