Intel Chief: Why Tech Will Survive Crunch

During his long career with Intel, the world's largest semiconductor company, Paul Otellini has had a catbird-seat view of the remarkable social and business changes wrought by the information technology revolution. Now Intel's CEO, he has also witnessed some of the tech industry's biggest setbacks, such as the implosion of the dotcom bubble in 2000 that plunged the U.S. into recession. In an recent interview with TIME senior editor Jim Erickson, Otellini discussed some of the differences between the dotcom bust and the current global financial crisis — and whether technology's Next Big Thing can help lead the country out of its economic funk (Answer: not this time).

TIME: Alan Greenspan said in recent Congressional hearings that the financial crisis was partly enabled by advances in computer and communications technologies. Do you feel the need to confess?

(Laughs) Greenspan has also said that the tech industry was the main driver of productivity in the United States in the 1990s, so he can't have it both ways. Or maybe as an economist he can.

TIME: I think he was saying merely that computers made possible the creation of sophisticated risk models and trading programs that turned out to be wrong.

On the contrary. Computers didn't invent things like flawed program trading — people did. Program trading simply followed algorithms that people wrote. So while a computer may help make dumb decisions happen faster, I think putting the blame on computers when they've been such a driver of productivity is a mistake. Taking junk mortgages and calling them triple A, that's not a physicist's or a computer scientist's decision, that's somebody who is trying to pitch something.

TIME: How is this downturn different than the one following the bursting of the dotcom bubble?

They're very different. The dotcom bubble was business models that were too good to be true, followed by valuations imploding. That had nothing to do with liquidity and credit. I hate to use the "G" word — but a lot of greed was involved in the IPOs those days. And the impact on our business —technology — was profound in the sense that a lot of those businesses that went away bought a lot of our products. Not just Herman Miller chairs, but also racks of servers and laptops and stuff. For a long time, throughout most of 2001, you could buy a lot of surplus servers on eBay for a third or tenth of the price. So there was a clear artificial bubble in terms of sales that got dissipated over the subsequent years. I don't see that same phenomenon in this crisis particularly. The servers that were at Bank A, which is no longer a stand-alone bank, are still running all the transactions, it's just that they now belong to Bank B.

TIME: Do you think its possible we just haven't gone far enough into this recession to see its full ramifications?

I'm not going into economic prognostication. But I do think that, in essence, the computer is a tool of productivity, and in typical, traditional downturns in the past, tech has done better than other industries for that reason. The other thing that has happened since the last downturn is, the PC has become indispensable. This is the first time in our lives when, if you go home tonight and your computer breaks, are you going to say "Oh well, we're in an economic downturn, I'm not going to buy a new one'""?

TIME: I have a Blackberry, so...

(Laughs) Yeah, try writing your stories on that. Whether it's for work or entertainment or resume creation, computers have become an indispensable tool in the daily lives of over a billion people, and there are another billion people who are going to buy them in the next few years, so that's a different dynamic than we had in the past.

TIME: But hasn't the financial services industry, which obviously is in distress, been a big consumer of technology in the past? Won't that have some impact on Intel?

Financial services, before the meltdown, represented about 15% of our server business; servers represent about 20% of our [total] business — so it's not significant overall. And it won't go to zero — everything I'm reading points to more, not less, regulation. That stuff is going to require tracking software. Sarbanes Oxley led to significantly more IT spending.

TIME: What are the bright spots right now, in terms of geographies and products?

The big growth driver over the last couple of years has been notebooks, and that's not changing. There's a shift from desktops to notebooks, and a shift within notebooks to come down in price as volume expands. Both of those trends are very good for us. We have entered a new class of notebook machines called netbooks, which are small machines with 10-inch screens. You don't use them for content creation, but they are great for simple things like surfing the net and e-mail. And they're taking off. They're at great price points, so you see this situation where people that couldn't afford computers before are buying them — and as prices come down, that's just going to continue. We developed a whole new product line for this, we didn't take an old product and strip it down, we built this from the ground up using our best silicon technology, designed for cost and power, and to give us decent margins at these low price points. So that whole trend has been great for us, and I don't see it abating, particularly if we have a difficult economy next year.

TIME: Will this help sales in India and China?

Well, not so much China. China is already the second-largest computer market in the world, it hardly needs an accelerator. China actually buys a richer mix of products than the U.S. now. When you go to Beijing or Shanghai, it's not very different from Hong Kong or New York. People have the same aspirations and levels of disposable income — and you might have a higher degree of interest in computers in general because of the age of the population.

TIME: Tell me about some of the big-picture technology trends that you find exciting right now.

There are a bunch of them. At the 50,000-foot level, the Internet is going to be used to connect us to every single electronic device that we have in our lives, and that's a really exciting thing for a company like Intel ... A lot of the content that you watch on TV is proliferating online, so you get to watch whatever you want, when you want to see it. That's already happened in audio, it will happen in video as well ... Mobile phones have evolved into small computers, and the iPhone has changed people's views of what a phone should be ... Your television is going to be connected, as is your set-top box ... Your automobile is going to be connected. We're working with BMW, they have wonderful products they're designing into cars coming out in four or five years that can provide real-time information, like traffic updates and other information that's important to you. So having that technology be pervasive and be useful to us, I think will improve the quality of lives. And to me, that's a wonderful opportunity.

TIME: Do you see any trends that are so strong they could lead us out of the current economic slump?

In the U.S., we're already a relatively highly automated society. PC penetration is already very strong at the household level. Basically any house that wants one, has one. It's hard to imagine what the next big thing might be that everyone is going to want, that's going to be big enough to drive the economy out of a recession. The 800-pound gorilla in the room is the housing market. Until that sorts itself out, it's going to get worse until it gets better. And when it gets better, it will be a driver of change.