CRN Interview: Paul Otellini, Intel

Paul Otellini, president and COO of Intel, is one of the chip giant's leading channel advocates among its executive ranks. In an interview with Editor/Strategy Heather Clancy during the Intel Solutions Summit in Phoenix, Otellini addressed some channel and computer market issues raised by Intel Premier Partners at the event.

CRN: How important is the channel to Intel's business this year?

OTELLINI: I think it's incredibly vital for us. The channel overall is a very big part of our business. It's been about one-third of our business for more than a decade and has kept up with all the changes in the industry, year in and year out. It's vital. What the [Premier provider program is doing is kind of taking it to the next level. We work together to enable that class of customers to sell a broader portfolio of our products and to sell higher value-added products, where the sweet spot of the industry is likely to be. If you look at some of the megatrends in the industry, low cost is one of them, but high-touch is another. To provide that kind of service and fully integrated solution support over time means that small and midsize businesses [SMBs are going to want one-stop shopping. The VAR channel is really in the best position to continue to do that.

CRN: Is it important for these Intel partners to be investing in new convergence and wireless technologies, on top of boxed processors?

OTELLINI: It's not for us to say what someone wants to do with their business. But I think in this industry, if you don't continuously refresh your skill sets and technologies and move up, you have a propensity to be commoditized. And the way to not become commoditized is to move ahead very, very quickly.

CRN: How is the systems builder channel doing with two-way and four-way servers?

OTELLINI: This channel is moving up nicely. They tend to do much more volume in the single- and dual-processor products. Some of them are selling the four-way product, but that requires a pretty sophisticated level of investment in terms of what you're dealing with in applications, installations and such.

CRN: When will the white-box mobile area grow into larger volumes?

OTELLINI: Notebooks are still a relatively small percentage of the systems purchased by the customer base of the channel. I don't know that it's a chicken-and-egg problem. I think it's a degree of sophistication. There are two classes of people likely to buy it: Certainly, large business buys [lots of notebooks, and that's not a big customer base for the channel; SMBs, as they get more and more mobile in terms of doing presentations and such, are likely to start picking up notebooks; and consumers are likely to [buy them as they deploy wireless networks around the house.

You could argue that for a small business, putting a wireless network in with notebooks is a lot easier than running cable and having desktops. So I think the scenario is staged to see interesting growth. The channel is supplying pieces. We supply processors and boards and chassis that are relatively snap-together. But [building notebooks requires, I think, a scale in terms of operations that is not quite there yet [for white-box builders.

CRN: Is Intel doing anything to encourage this?

OTELLINI: We aggressively encourage it. It's just that it's moving at its own pace.

CRN: The gray market was a persistent concern last year. Are you happier with the gray-market situation right now?

OTELLINI: We're never happy with the gray-market situation. It's like a tide. There's a time when it becomes acute, and there's a time when it's not an issue. It's most acute in times of shortage, and there's not a shortage right now. So it's not particularly a big issue.

CRN: How does Intel work with the distribution channel to ensure supply when a price cut is coming or a product line is transitioning from one processor speed to another?

OTELLINI: That's just product management. We absolutely plan to make that happen and make it seamless. Sometimes you have bumps, and sometimes you don't. Most of the time, we do that very well.

CRN: At the Intel Solutions Summit, solution providers were specifically asking about the supply of 1.6GHz chips. Why the recent shortage?

OTELLINI: We were shipping 1.6GHz editions, and they just wanted more than we had forecast. So we were able to move production around to be able to get them some more quickly.

CRN: Are you satisfied with Intel's forecasting ability?

OTELLINI: We've learned that the best predictor of all is the long-term trend line. We look back and say, 'Growth is likely to go on this curve for a long time.' And then we go do data research to back that up. That data research tends to look at the long-term econometrics in technology diffusion groups in a given society: What are the income levels vs. the technology?

The thing that is most important to us is to get the long lead-time items correctly, like $2 billion factories that we build a bunch of every year. They take multiple years to build and a couple years to come online. You want to make those investments on a curve looking out three years or so and beyond. The life of the factory may be three to five years out. It's essential that we understand the size of the market relative to those factors. You don't want to be stuck with one factory too many, and you don't want to have one factory too few. That part of the curve we've gotten down fairly well. We don't often miss [our projections by a factory anymore. The short-term stuff is anybody's guess,whether March is better than April, or vice versa. We're as good as anyone in the industry, and that's not saying a lot.

CRN: Especially right now.

OTELLINI: You know, that's a U.S.-centric comment. Most of our business is not in the U.S. The U.S. is not even our largest geography. Asia-Pacific is the largest market for us.

CRN: Why is that?

OTELLINI: Because there are a lot of people buying computers there, and there are a lot of computers being built there. It's the combination of the two. Some get built there for export. Most notebooks are built in Asia, independent of where they are consumed. China is the third-largest national market in the world, and likely to be the second-largest market soon.

CRN: Is the channel as strong in that region as it is in the United States?

OTELLINI: Probably stronger, because more of the business in those countries is done through the channel than it is in the U.S.

CRN: How will you ensure that Intel's name will become synonymous with newer technologies such as converged communications?

OTELLINI: This is the work in process that you see. We did a couple of dozen acquisitions in that area in the last few years. We are spending about $1.2 billion in R and D, which is bigger than most of our industry competitors combined in terms of their R and D budgets. We have a very clear vision of where we are going. It's a silicon-centric vision of where we are going. We can use the benefits and scale of the computer side of the house to drive volume in that convergence process.

CRN: How important is it for Intel to coordinate with software developers working on the Intel server platform?

OTELLINI: It's critical. We believe very much in the whole build of the Internet business and the future of it. In doing that, it is a combination of hardware and software. And there's optimization needed because a lot of these solutions run on a lot of hardware--some proprietary, some open.

The job that we want to do is make sure that we bring the volume and the scale advantages of the PC market to those segments and bring the best performance, which means we need to optimize around the environment with our architectures and make them pervasive. Until it's 'shrink-wrapped,' it's not going to be pervasive. So we have to make more snap-together applications. We started a solutions effort in the Intel architecture business two and a half years ago. It's now more than 1,500 people--90 percent-plus engineers--that are focused on tuning software and creating application stacks so that applications all work together on our architecture. Some of it is high-touch; we have solution centers. And some of it is low-touch; we do it over the Internet.

CRN: How important are Intel's Linux relationships right now?

OTELLINI: It's one of a few operating systems that we are really focused on. But we shouldn't get it out of proportion. We tend go where the volume is. The volume has been and still is on [Microsoft Windows, and probably in excess of 90 percent of our efforts are for Windows.