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Paul Otellini: Intel Lost the iPhone Battle, But It Could Win the Mobile War

Posted by Unknown on from the learning-from-mistakes dept.

kenekaplan writes "In an interview with The Atlantic before stepping down as CEO of Intel, Paul Otellini reflects on his decision not to make a chip for the then yet released iPhone. 'The lesson I took away from that was, while we like to speak with data around here, so many times in my career I've ended up making decisions with my gut, and I should have followed my gut,' he said. 'My gut told me to say yes.'"

25 of 117 comments (clear)

  1. Gripping insight by John+Napkintosh · · Score: 4, Funny

    I usually don't keep up on things like this, so it was nice to see an article that really s

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  2. The girl you should've asked to prom... by Picass0 · · Score: 4, Insightful

    Yeah, we've all heard guys tell stories like this. It takes me about 20 seconds before I mentally paint an "L" on their forehead.

    The day Steve Jobs stood in front of a room and introduced the Iphone EVERYONE knew this was a game changer. "Today we're going to introduce a new iPod, a phone, and world class web device" As he repeated that line the graphics on the screen merged and the room realized the leaks about three new products were instead one new device. It was a hell of a mis-direction. It wasn't "the mother of all demos" but it was a close second.

    Intel knew this was on the way and didn't think it was lightning in a bottle? Their shareholders should be furious.

    1. Re:The girl you should've asked to prom... by mmcxii · · Score: 2

      Yeah, we've all heard guys tell stories like this. It takes me about 20 seconds before I mentally paint an "L" on their forehead.

      Ok. So you've never let something get away from you that turned out to be huge? I'm sadly one of those guys with a big "L" on his forehead. I have a good friend who did a website early on in the history of the web and he made an absolute killing for a guy just turning his hobby into a business. Part of his success really wasn't the site itself but also who he partnered with and that added value to what he already created. He left this venture after about 15 years and while I think he'll go on to other things I'd like to think he's well enough off that he won't have to. I could have been part of that but at the time I thought it was something that may have made beer money but I didn't expect much. At the time it was also a hobby site more than anything else. Oh well, such is life.

      It wasn't "the mother of all demos" but it was a close second.

      What was first?

    2. Re:The girl you should've asked to prom... by Solandri · · Score: 4, Insightful

      The day Steve Jobs stood in front of a room and introduced the Iphone EVERYONE knew this was a game changer. "Today we're going to introduce a new iPod, a phone, and world class web device" As he repeated that line the graphics on the screen merged and the room realized the leaks about three new products were instead one new device. It was a hell of a mis-direction. It wasn't "the mother of all demos" but it was a close second.

      I disagree, but that's probably because I'd been using PDAs for a decade prior to the iPhone. Everyone in the PDA business knew that phones and PDAs were going to merge. The only thing they didn't know was if phones were going to pick up PDA features, or if PDAs were going to be able to make calls. In the end, they are both small computers running various programs.

      The only game-changer the iPhone brought was that it eschewed hardware number/keyboard entry (and one helluva marketing campaign). Others had toyed with a purely touchscreen interface before, but nobody had bet the entire farm on it like Apple did. (For those taken in by the marketing who believe that the iPhone was the first purely touchscreen phone, google for LG Prada.)

      In that way, the iPhone was a lot like the iPod. It was ho-hum in terms of technical features - things which everyone else already had or had tried before. But the interface was a game-changer, and even if they weren't actually the first to market with the idea their massive marketing campaign made it first in people's minds. So I don't really blame Intel for missing the boat. Interface and marketing aren't things you can really appraise prior to a product's release. If Intel judged the iPhone purely on its technical features, it would've looked like any other smartphone with one helluva risky bet on a touchscreen-only keyboard. Just like the technocrati here first saw the iPod and based on its technical features declared, "No wireless. Less space than a Nomad. Lame."

    3. Re:The girl you should've asked to prom... by Picass0 · · Score: 4, Insightful

      You could look at Apple's own Newton and see a lineage. PDAs existed before the iPhone and are pretty much a dead market now.

      Apple had quite a few of innovations, some created in-house and other purchased. The iPhone has a fantastic interface. Even the earliest iPhone had a quick, responsive interface with excellent graphics. They were first to bring multitouch gestures to a mainstream appliance. As you pointed out they got rid of hardware keys without using garbage like "grafitti". They put a lot of work into a better interface and it shows.

      Apple designed their way out of the intimitation factor. They simplified everything down to one button. When grandma gets lost on an iPhone or iPad she knows that one button will always get her unstuck.

      I'm not an Apple fanboi, the Galaxy sII and Asus Transformer next to me are proof of that. Android has taken Apple's starting point and improved on things IMHO.

    4. Re:The girl you should've asked to prom... by Picass0 · · Score: 3, Insightful

      >>"So you've never let something get away from you that turned out to be huge?"

      Of course. Most people don't run around bragging about it. Warren Buffett used to talk about passing on the chance to own Microsoft (back when he told this story Gates still ran the store).

      Steve Jobs bet Apple's future on the iPhone and won. It took stones. He said when he introduced the device it would change they way we make phone calls and it has. You, me, and ~80% of the US market using cell phones at this moment have a smart phone that has been influenced by the design of the iPhone.

    5. Re:The girl you should've asked to prom... by Picass0 · · Score: 4, Insightful

      Interesting but Apple developed iPhone over ~2 - 2.5 years. Depending on when the key players sat with Intel that likely would have been enough time to develop a first generation chip. Apple sold 3 million iPhones it's first year, so the payoff would have been worth it.

      Apple met with other vendors who stretched out of their comfort zone - such as Corning to create the first generation Gorilla Glass. Corning had all the reason in the world to play it safe. They had just lost big on photonic technology and were hovering over the junk stock threshold. Corning's closest experience to the iPhone's display was CRT tube glass. Gorilla Glass is now used on 1.5 billion devices around the world.

    6. Re:The girl you should've asked to prom... by postbigbang · · Score: 4, Insightful

      Jobs just designed the pain out of the iPhone. Long battery life. Just works. No hassle operation. Huge apps. A natural extension to your growing stable of i-stuff.

      The herd moved. The CPU? An ARM-- the direct and absolute antithesis of everything Intel stands for. Simple, low-power consumption, RISC, and with easily grafted subsystems.

      If Intel did the ARM, it would measure six feet by eleven feet, weigh 900lbs, and use four kilowatts of electricity, and would need to have Microsoft's lipstick on it.

      It's maximally disingenuous of Otellini to utter such horse crap. Andy Grove, come out of retirement, would ya?

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    7. Re:The girl you should've asked to prom... by Picass0 · · Score: 4, Informative

      "maximally disingenuous"

      Good phrase.

      Consider how much has changed since the iPhone 1 ~ six years ago.

      Apple has nearly done away with the click wheel. In fact most music devices are now touch screen based.
      Clamshell and candybar phones are increasingly a rarity, most people have a smart phone or feature phone.
      The iPad grew out of the iPhone and now has dozens of imitators.
      The "ebook" grew out of the tablet market pioneered by Apple.
      The laptop market has been overtaken by the tablet market.
      Tablet and Smart Phones have cut heavily into the handheld game market.
      MS decided to glue a touch tablet interface onto it's desktop OS Windows 8. OK, I threw that one in there for laughs.

    8. Re:The girl you should've asked to prom... by postbigbang · · Score: 2

      Kind respondent,

      You say "Nonsense" when you've just said pretty much everything that I said as an argument to my post. Thanks for the corroboration.

      The Atom is a catastrophe in the phone and tablet market. Yes, StrongARM might have had a chance, but DEC didn't invent the 6502 and was only a licensee of ARM-- and DEC had other IP that HP bought and Intel shared over another catastrophe chip, the Itanium. There are a closet full of these things. Intel wanted to control all of the elements, just as Apple has, with their supply chain. They said, essentially: go away. And they did it, and like it or not, it worked. It has its problems. Nothing is problem-free.

      But in terms of leadership and direction, Otellini has run Intel into a ditch. Software acquisitions have helped a bit, but in terms of silicon leadership, Intel has lost a lot of ground-- despite the missteps of AMD. The ARM licensees have shown great vision and lots of brains. NVidia eats a lot of lunch and for good reason-- they're not stuck in a ditch of their own making.

      Integration is a wonderful thing. We're not talking servers that will last ten years. Consumer devices last about three, then they churn. If they're made by HTC, IMHO, they last about two years if you're lucky. I'm not a believer in disposable electronics, rather, Intel's vision of how to make devices can be readily stated as old-school. The day of fat motherboard chipset licenses is freaking over. The half-life of a phone or tablet design is a meager nine months. Intel just isn't ready to live in those cycles. That's why deft manufacturers have designed around them and the supply chains evolved to move around them.

      Intel is leaden.

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    9. Re:The girl you should've asked to prom... by LynnwoodRooster · · Score: 2

      That's only because Steve Jobs used his time machine in 2010 to go back and push Corning to make it...

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  3. my gut by wbr1 · · Score: 4, Funny

    My gut tells me not to eat tacos with honey Diablo habenero sauce anymore. I don't listen either.

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  4. I wish I'd went with my gut... by cervesaebraciator · · Score: 4, Insightful

    "We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we'd done it," Otellini told me in a two-hour conversation during his last month at Intel. "The thing you have to remember is that this was before the iPhone was introduced and no one knew what the iPhone would do... At the end of the day, there was a chip that they were interested in that they wanted to pay a certain price for and not a nickel more and that price was below our forecasted cost. I couldn't see it. It wasn't one of these things you can make up on volume. And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought." It was the only moment I heard regret slip into Otellini's voice during the several hours of conversations I had with him. "The lesson I took away from that was, while we like to speak with data around here, so many times in my career I've ended up making decisions with my gut, and I should have followed my gut," he said. "My gut told me to say yes."

    So, he made a perfectly rational decision based upon the data he had available. It turned out in the long run that he would have been better off if he had acted otherwise, so looking back on it he says it would be better to reject rational decision making. I find this unconvincing. In my experience, people have a fantastic way of revising their own personal histories and 'the gut' is a great tool to do so. If I made the best choice I could, given the information I had, and it turned out incorrect I can always look back on things and say that my gut told me otherwise. By this means the chief protagonist of my personal history will always be correct, always know the right thing to do, even when it turned out to be wrong.

    1. Re:I wish I'd went with my gut... by Above · · Score: 3, Insightful

      The only thing worse than no data, is bad data.

      I'm going to assume that Intel is pretty good at projecting their cost to make a chip, and that while that estimate was wrong it was unlikely wrong by a factor of 100x, more like 10-30%. That's probably still counts as good data.

      Making a guess as to the volume of a brand new device, which to quote him "no one knew what the iPhone would do" is the essence of making a decision based on bad data. Any projection there was completely made up. A straw man for Apple to negotiate pricing. Treating that as some sort of number that could be plugged into a spreadsheet and used to make a decision is tantamount to incompetence at his level.

      The iPhone created a new market. With even a minimal amount of information (which they had to have to do a chip cost estimate, I believe) they could have realized that. Business school 101 talks about the first mover advantage, and how locking up a market early on is often one of the make or break elements. They should have had a serious discussion about how much money they were willing to risk losing with Apple just to be the ones that walked into this new market with Apple hand in hand. By having a head start on designing chips with the right qualities they stood a good chance of selling them to other companies who wanted to get into the competitor-to-iPhone market and needed similar capabilities.

      There is an aspect of hindsight being 20/20 here, but the big wins in business all come from a calculated risk. Apple's original projections for the iPod were blown away as they dominated the portable music player market. There was good reason to think the phone would be the same. Intel had a strong balance sheet at the time, and could have risked a loss if it flopped for the chance of being the go-to chip guy for an entire class of new cellular telephones.

      This was someone with an engineering background, who trusted questionable numbers over rational risk taking business decisions. That's extremely not good for someone in his position.

    2. Re:I wish I'd went with my gut... by unimacs · · Score: 2

      They seem to have a hard time grasping that numbers aren't all that matter and more data needs to be considered. The game changers are often the people who know how to look beyond the numbers.

      This is especially true for Apple. Apple's sales have always relied as much on consumers' emotional responses to its products as to the tech specs - - (Apple haters would say they relied it more or exclusively). It's always been about creating "an experience" for consumers, which, by definition, creates an emotional appeal that can't be measured quantitatively. So anyone who tries to judge the likely success or failure of a new Apple product based solely on numbers and tech specs just doesn't understand the way Apple does business at all.

      I'd take it further than that. To like something because it's easier to use than another product isn't just an emotional response, it's a very practical one. The iTunes store made it easy to get the music you wanted. There were smartphones before the iPhone and even ones with touch screens. There were PDAs, There were mp3 players. There were cameras. Apple created a device that from a sheer hardware and software standpoint was perhaps not the best of breed in any of those categories but was by far and away the best at combining them. It was also easy to buy which is part of the process.

  5. The real question is by MLBs · · Score: 2

    Would the iPhone still be a success with an Intel processor, given the power consumption of their chips at the time.

    1. Re:The real question is by alen · · Score: 2

      intel owned an ARM chip maker at the time and they still have an ARM architecture license

    2. Re:The real question is by Anonymous Coward · · Score: 2, Interesting

      I suspect (without RTFAing of course) that the CPU in question would not have been x86, but an ARM chip -- Intel used to make them under the StrongARM and later Xscale brands, but sold that line to Marvell; it's conceivable they could have returned.

      Intel is king of fab, they keep a half-step to a whole-step of process size ahead of the leading ARM SoC makers, so if they went with their process and ARM IP, they'd be insanely dominating, instead of just competing as now (because the x86's disadvantage almost exactly makes up for the process step's advantage). But they'd rather tie with their own IP than win with something licensed -- which I guess is just as well in the big picture, because the competition among SoC vendors makes for a healthier market, and Intel's domination if they'd gone that route would end many SoC lines.

  6. Re:yet released? by rsborg · · Score: 2

    chip for the then yet released iPhone

    I have heard the term then yet unreleased but what does then yet released mean? Is this something like flammable and inflammable meaning the same thing?

    Probably "yet to be released iPhone", but truncated because what's a couple of words here and there?

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  7. Intel will not "win" this war by steveha · · Score: 2

    For Intel to "win" the "mobile war" as the headline suggests, Intel would have to get the mobile device market to adopt proprietary Intel parts that only Intel can sell. Otherwise, Intel is just another vendor, and the mobile device makers can buy from Intel or not at their whim; Intel just being one of a group of commodity providers is not what Intel considers a "win".

    I've said it before: Apple will never lock themselves in with Intel.

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  8. Re:how much money is samsung making? by unixisc · · Score: 3, Insightful

    Intel's foundries are not the same as foundries from the likes of TSMC, Samsung, UMC, Chartered Semi & so on. They are an entire process ahead of the rest of the industry, and leading edge in terms of manufacturing variations. With other companies, there are variations between their fabs, which is why qualifications from one fab doesn't necessarily translate to the others. With Intel, they make all their processes absolutely identical, and strive at it. Also, Intel does not touch the low margin business, such as memory - they even exited the flash memory business, spinning off Numonyx (which is now a part of Micron). As a result, they don't have to water down wafer prices on their customers, with the result that the only customers they'd have would be the ones that have high margin products that few buy, and not the products where every die is a few cents and manufacturers try and make up razor thin margins on volume.

  9. Re:Could win the mobile war? by VortexCortex · · Score: 2

    Did someone redefine the world Win?

    First they ignore your desktops, then they laugh at your mobiles, then they fight your on chip DRM, then you win.

  10. The takeaway? Always *hear* your gut. by Gordo_1 · · Score: 3, Insightful

    What this story tells me is that while your gut instinct may or may not be offering you the best path forward, you owe it to yourself as a business leader to figure out why your gut contradicts the data. If all you do is make logical decisions based on easily available data, then you can probably be replaced by a simple algorithm that can make more reliable decisions than you anyway.

    In this case, Otellini had data in front of him, but his gut instinct contradicted the data-driven path forward. He ignored it and moved on, convinced that it was safer (?) to be on the side of the data. But the data led him astray. Why?

    Because he had partial data, data that was probably focused on previous mobile computing entries and little on Apple's recent design successes, superior user experiences and marketing capabilities. If he'd realized his gut was really signalling that they needed more and different kinds of data, I suspect Intel would have gone down a different path.

    1. Re:The takeaway? Always *hear* your gut. by gtall · · Score: 2

      But at the time, Intel didn't have a mobile processor that sipped energy like ARM's. So what was he going to offer? License ARM...again? Maybe the data told him his processors were dead fish for mobile and that he'd be better off waiting until Intel could catch up.

  11. Peope forget XScale so easily! by default+luser · · Score: 2

    Interesting but Apple developed iPhone over ~2 - 2.5 years. Depending on when the key players sat with Intel that likely would have been enough time to develop a first generation chip.

    Remember, Intel was THE LEADER in cutting-edge ARM chips until they sold the ARM division to Marvell in June 2006. They even introduced high-end feature like Mobile MMX and SpeedStep, and pushed clock speeds higher than any of their competitors.

    That's absolutely in the time-frame of iPhone development, plus a year into Paul's tenure. The fact that they sold the ARM division and decided to start back at square one with Atom (not exactly a power miser in the first revision) shows that they had no intention of going "high volume, low price" like Steve Jobs was asking.

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