Intel's plan to ride out the recession

November 7, 2008: 11:10 AM ET
intel-maloney
Intel sales and marketing chief Sean Maloney says he's confident in Intel's strategy, despite the downturn. Photo: Intel

SANTA CLARA, Calif. - Intel stock has fallen by half since its December high, so you'd expect the mood in the executive suite to be less than buoyant these days. But during a chat this week at the chip giant's headquarters, Intel sales and marketing chief Sean Maloney seemed unmistakably upbeat.

"We've been through downturns multiple times, so we're sort of genetically set up to handle it," Maloney said. "We accumulate cash in the good years, and that means we can then invest in the down times."

So straightforward. Could it be that in the end, this would-be apocalypse is just another downturn?

It's tempting to shrug off such talk as post-election euphoria; in hope-fueled Silicon Valley, there is a sense that the home team won Tuesday night. But there was also substance behind the sentiment. Maloney had just completed a three-week tour of some of his most promising markets -- Brazil, Chile, Germany, Russia -- and returned confident that Intel's overall strategy is sound and will continue to work in tough times. "Whoever has borrowed the most money, either against oil or against the dollar clearly has the most problems," Maloney said. But overall, he's convinced that the world still needs more Intel chips.

For the past several months, Intel (INTC) has been among the leading cheerleaders of the tech industry's latest growth narrative: that a worldwide embrace of Internet services and a growing middle class in developing markets will continue fueling unprecedented demand for everything from laptops and smartphones to servers and storage. In the midst of a global financial crisis, however, that narrative, like most every assumption in the business world, faces new questions.

Among them: How long will tech companies have to shelve their dreams of explosive growth? And as global economic troubles ripple through developing nations, will their appetite for gadgets hold up?

Thus far, there's no shortage of reasons to feel gloomy about the potential answers. Dell (DELL) has instituted buyouts, a hiring freeze and has asked employees to take up to five unpaid days off. Cisco (CSCO) reported a steep drop in October orders, and said this quarter's sales will fall as much as ten percent. Motorola (MOT) will lay off 3,000 workers, Electronic Arts (ERTS) and Advanced Micro Devices (AMD) about 500 each.

Intel's own forecast for this quarter calls for sales that are barely up from last year, and CEO Paul Otellini said he expects this to be the deepest recession he's ever seen. American Technology Research analyst Doug Freedman cut his growth projections for Intel on Thursday, saying PC demand looks soft.

So why was Maloney optimistic? He believes Intel has streamlined its operations to function optimally in a downturn, and that its $12 billion cash stockpile will help it to leap ahead when times are better. "Everything in the company is ready for this. Never believe the booms, never believe the busts," he said.

One nice example of Intel's readiness: Manufacturing and marketing executives used to meet once a month to plan what chips to produce. Now they meet twice a week, and Intel has retooled its chip manufacturing operation to quickly react to customer tastes. See sudden demand for more Atom chips? Intel will scramble to fill last-minute customer orders, as part of an initiative executives call "Say yes within 24 hours." (The old Intel did a lot less scrambling, and a lot more dictating to customers what chips they could have.)

None of this suggests that Intel will be immune to a downturn; Otellini said Thursday he assumes the downturn to continue well into 2009. But Intel executives seem to think they won't have to drastically slash costs to ride it out.

A postscript: America's image in the world has suffered over the past few years, and while Maloney said he doesn't believe Intel has been affected by that as a major American company, he offered some thoughts about this week's election results and the implications for multinationals:

"I'm still British, although I'm an immigrant, and like many immigrants I really love America. Like anyone else who's traveled, I've spent a lot of time the last five years defending the country. And people say things to me that they don't say to Americans because I'm European. As you know, the rage against America has been stunning. And it's always been apparent that Obama could give the chance to turn the whole thing around. And I think that's deeply significant to the U.S., and has to have some impact on U.S. companies." (AAPL) (HPQ) (IBM) (MSFT)

Join the Conversation
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.