Intel and Apple are at the crossroads
This week is IDF, and last week I spent some time with Andy Grove talking about saving the country.
Andy may be the last truly great Intel CEO. It is amazing how companies seem to lose their way once a founder that has been so instrumental in driving the company to success departs.
Microsoft just isn’t the same without Bill Gates at the helm, and years ago IBM's slide really started when Thomas Watson Jr - in that instance the son of the founder - retired.
Apple almost lost its founder. And the fact that the iPad isn't going to appear in the fourth quarter, and the way the new Zune is better than an iPod, I think give an idea of what will happen to that company when Steve Jobs departs.
And Intel is far from the top of its game at the moment. Of the two companies, with Steve Jobs back, Apple appears to be in better shape. But both firms are at a crossroads.
Anti-Trust: A Sign of Sickness
IBM, AT&T, Microsoft and now Intel have been branded as companies who cheated, despite protestations to the contrary. I followed IBM’s slide most closely, and it took decades - yes, decades - to recover from its own consent decree. Microsoft likely isn’t even half way through its related problems. AT&T was killed and has since been reborn as a new company.
This all resulted from an excessive focus by Intel on AMD as a competitor - and from a lack of top-level business sense. This seems to happen a lot. A dominant market vendor needs to grow the market because only through market growth will it truly advance. But if that leader instead focuses on a competitor, price wars result, margins collapse, and each point of share growth comes at an increasing price to the bottom line.
Growing the market, on the other hand, preserves margins and promotes both top and bottom line growth. The reason most companies that get into anti-trust trouble do so is that they lose track of both this fact and the customer and feel forced, and justified, in behaving badly - and, because they have dominant power, believe it is within their rights to do so.
Regardless of whether it did anything illegal, Intel’s actions collapsed the company’s value and were key to taking what was a healthy and very profitable market and making it sick. Pat Gelsinger, who many of us thought of as the heart of Intel, recently departed to help run EMC, which I think is symptomatic of the problem within Intel. Pat represented Intel’s integrity, and his departure leaves the company without anyone that people can truly trust.
The reason I bring this up is that Pat was connected at the hip to IDF, had twice before tried to leave, and had been convinced both times (by Andy Grove personally if memory serves) to stay because Andy (and I agree with him) seemed to think he was critical to the company.
The other recent symptom is the departure of Intel’s chief counsel Bruce Sewell for Apple. If you’re in a fight and your top general in that fight leaves for greener pastures, it isn’t a good sign. I think this bodes well for Apple, but clearly not so well for Intel.
I was watching Paul Otellini’s keynote at this week’s IDF. He was poorly rehearsed, often stumbling, and lacked any real energy. What I found interesting was that Sean Maloney, who introduced and followed him, was energetic, well rehearsed, and on message. In short, Sean was more presidential than Paul - although this may, surprisingly bode well for Intel’s future.
Paul’s message was on the idea of Continuum, and a future product spread that could encompass much of what we use that is moderately intelligent. This ranges from the very small, like phones, to the very large, like mainframe class enterprise servers. In the middle come appliances, automobiles, aircraft and ships.
It's a powerful vision, even though its delivery left something to be desired. If Intel can actually realise this vision, it could exceed the greatness it achieved under Andy Grove.
But, to do this, it will need to perform at a level in line with this ambitious goal - and, right now, it isn't executing at a level in line with the Andy Grove years. It needs to get out from under government oversight and put the anti-trust problem behind it, because there is no history of a company once considered an illegal monopoly ever getting significantly stronger after that event. They always decline.
Intel has good products. In that area, it is nearly at the top of its game, but it has crippled its market and put itself in a bad position to create the future it now imagines. Fixing what it has broken, or continuing to deny that anything is broken, is its crossroads. I’m not aware of any company yet making the right choice when facing a similar decision.
Apple Making the Right Choice?
I should have finished the last sentence with 'yet'. Apple did two things this month that suggest it may be actually make the right choice in a similar situation. Increasingly under anti-trust investigations itself, it hired Bruce Sewell from Intel and pushed through around 1,400 applications (one of the complaints is on Apple being anti-competitive with application approval) through its App store. Unfortunately the apps were mostly crap, but the firm did seem to be anticipating a problem.
It looks as if Apple is actually trying to avoid the same bullet that has hit Microsoft and Intel and set an example of how this should be done. I’m a big believer in avoiding a problem that others have experienced, and it amazes me that with anti-trust issues it often seems like CEOs suddenly become blind to history and repeat the same problem. Jobs, at least to me, appears to be different and is doing the right thing.
However, my concern is what Apple will do when Steve Jobs actually leaves, and this recent behavior, instead of mitigating the problem, points like a laser right to it. It once again showcases how unique Steve Jobs is in this market, and how critical to Apple he continues to be. Looking at the timing of the iPad and the firm’s fall behind Microsoft with its recent iPod offerings (something that's never happened since Apple created the iPod) suggests that Apple can’t continue to function at its incredibly high levels without Steve Jobs - any more than Microsoft has been able to function at historic highs without Bill Gates or Intel without Andy Grove.
This is not a new problem. In fact, with the exception of Thomas Watson Jr, who took IBM even higher than his father, there are very few examples of a founder leaving and the company he left actually getting better. Generally the firm falls into decline or stagnates; don't forget, Apple actually had a warning, as it didn’t do particularly well the first time Steve left.
Apple’s crossroad is to find a way to truly backfill Steve Jobs, or allow this decline again. Steve appears capable of fixing the problems that seem to have proliferated in his absence. But he clearly won’t be around forever and right now it would appear Apple’s lifespan is tied to Steve’s tenure. Steve has time to train a successor, he has clearly been warned that one is needed; his crossroads is to decide whether to engineer a replacement worthy of his legacy or be remembered as the only great Apple CEO. But the latter might not be that meaningful if there is no Apple. Who was the last great CEO of TWA or RCA?
Wrapping Up: Crossroads and Choices
Both Intel and Apple (for which read Steve Jobs) have hard choices in front of them; they are at a crossroads in their histories. Intel, to find its future, must find a way to settle current conflicts and get its focus back on customers and market growth. Steve Jobs must train a successor even if that means he has to acknowledge his own mortality and retirement.
In both cases, the future dreams and potential for both companies will be inherent in the decisions that are made in the next few months. Unfortunately, history does not lead us to expect that either will make the right decisions - we can only hope for exceptions.