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Influencers Transcript: Bob Swan, July 25, 2019

ANDY SERWER: Some influencers rise in one era but thrive in another. Robert Swan is the ultimate example. He began his career at General Electric, climbing the ranks of that mega company over 15 years. But in the late 1990s, he leapt headfirst into the tech boom, going from one dot.com venture to the next until he landed at eBay as CFO.

Last year, he became the chief executive of Intel, where he has helped the world's biggest chip-maker reach $70 billion in annual sales. And now Apple has bought parts of Intel's modem business, worth a billion or more. He's here to talk about why tech is at the center of the business world and what that means for everyone else.

I'm Andy Serwer. Welcome to "Influencers," and welcome to our guest, Bob Swan, the CEO of Intel. Bob, great to see you.

BOB SWAN: Great, Andy. Wonderful to be here with you.

ANDY SERWER: Actually we're here with you, right, because we're here in the Intel offices in San Francisco. So thanks so much for hosting us here today.

BOB SWAN: Yeah, it's great to have you.

ANDY SERWER: So you have been CEO for about four months now. And I guess it's logical to ask you, how's it going and what's your strategy for the company at this point?

BOB SWAN: Well four months-- I'd start with time flies when you're having fun maybe as a starter. But for the last four months and even for the six or so months before that when I was in the interim capacity, we've had a strategy that we think is pretty clear and we feel comfortable with it. And in essence, it's about transforming the company from a PC-centric company to a data-centric company-- to take advantage of the increasing demands that both enterprises and consumers have for data and all the technology that's required to store, process, analyze, and retrieve that data.

So that's what we've been doing-- focused on key technology inflections to position the company well for an increasingly data-centric world. And four months in, it's just as much fun today as it was day one.

ANDY SERWER: Recently, you said, Bob, something to the effect that the company had let shareholders down. What did you mean by that? And how do you plan to change that?

BOB SWAN: Yeah. So we closed 2018-- it was our 50th anniversary. And it was the best year in the company's history. So we felt very good exit in 2018. And we came into 2019 with what I'd characterize as both tailwinds and headwinds, but we gave an outlook for 2019 that said we'd continue with our strategy.

And we thought 2019 would be yet another record year for the company. And the reality was 90 days in, our outlook for the rest of the year-- while we had a very strong first quarter-- 90 days in, our outlook for the rest of the year was not quite as good as maybe we thought it would be when we entered the year.

So we lowered our outlook. And in that, we take our responsibility and our accountability seriously. And we let investors down. We told them that we weren't going to quite play out the year as well as we expected in January. All that being said, in our 51st year, it'll be the second-best year in the history of the company based on the outlook we gave.

So we feel good about the trends. We feel good about strategically where we are. But we don't like to disappoint our investors.

ANDY SERWER: Right. Sort of over-deliver ultimately is what you're looking for.

BOB SWAN: Ultimately, yes.

ANDY SERWER: So let's talk about how you grew up-- upstate New York. What was that like? Did you want to be the CEO of a tech company when you grew up when you were young?

BOB SWAN: That was the least of my worries. So I grew up in upstate New York. I have eight siblings-- all kind of condensed. And you know, my worries at the time were more about, you know, winning the next basketball game and trying to avoid infuriating my brothers at my expense. So that was my biggest worries at the time.

But I grew up with great parents and wonderful siblings. And we're very tight today. So I was more worried about, you know, being a good sibling, being a son were more things that I was preoccupied with at the time.

ANDY SERWER: You went to a public university nearby and studied business. You played rugby in college. What was your college experience like?

BOB SWAN: It was a long time ago. But it was great. I mean, I think both the interplay of academics and sports I think were a very important foundation for me in terms of how my career evolved over time. Obviously the academics-- the learning, the content-- but also rugby for me was a team sport.

And I think about running a company, regardless of what role you're in, as a bit of a team sport. There's not a-- there's not the-- it's not run by one company. It's being content rich academics, but also being able to make the people around you play at a level they didn't quite think was possible.

And in my university days, that's what I learned from classroom, from team studies, but also from team sport-- rugby in particular.

ANDY SERWER: You have a wealth of experience at different companies, and I want to go through a lot of that. First of all, GE, you worked there for 15 years. What did you learn there, Bob? And then also, were you surprised at the company's struggles recently?

BOB SWAN: Well for me, I started right out of school. And it was the ultimate meritocracy at the time. If you did a good job, more opportunities were there for you. And the company was so diverse and so broad and the people so talented that the company gave you the opportunity to move around.

And I think from moving around, you would be with a different team in a different industry trying to solve a different problem. And the constant in the company was change. How do you keep performing at a different level? So that was the formative years of my career.

And I was blessed. It was a phenomenal company at the time-- incredible leaders and just the opportunity to be put into new situations where the expectation is you're not there to define problems. The expectation is you're there to make it better as a result of your presence. And I think that, in conjunction with education and sport, that GE was a continuation of my learning and development on how to be an effective leader to get the most out of teams. And GE was the foundation of my career. And I look back on it with extremely fond memories. I left in 1999.

ANDY SERWER: Good timing.

BOB SWAN: Yeah. So I'm probably not the best person to reflect on the recent challenges the company's struggled with. For me, phenomenal experience and a real solid foundation.

ANDY SERWER: Did it surprise you that the company had such issues-- maybe it's because you left. You were no longer there. It had to be that. But I mean, seriously, did it surprise you?

BOB SWAN: Oh, sure. Sure. I mean-- and you know, when I left in 1999, I'd been there, as you said, for 15 years. It was, you know, a company that was at the top. It had a healthy culture and perspective. There was zero complacency. And the idea of staying on top a moral, ethical fiber that existed, you'd never think those things go away.

But they've had some challenges of late. And I think for me in my role, it's not really to opine about others' challenges, it's to learn from others' experiences to avoid maybe pitfalls-- learn at others' expense sometimes. And that's how I think about the situation.

ANDY SERWER: You worked at Webvan back in the dotcom boom, which was a company that was very high profile and then it tanked. And I'm wondering, what did you learn from that, Bob? And then also, do you see any similarities between the environment then and the environment today? Things are certainly booming in the Valley these days.

BOB SWAN: Yeah. I mean, the learnings were incredible. If you think about it, when I joined Webvan, I left a company that I really loved. I really grew from it. And I met my wife at GE and my best man from GE. So it was a company it was very special to me. But to a certain extent, it was time for me to do something different.

And I never wanted to go anywhere where I would maybe compare each day to GE, because I knew I'd be miserable. So in 1999, if you want to go somewhere there's no circumstances upon which you will compare to your prior employer, it was coming out to Silicon Valley at the time-- and for me, Webvan in particular.

You know, the company at the time, and just the internet more broadly, disruptive technology that, through the use of technology, disrupted existing industries. And I would say at Webvan, you know, we used to think that we were trying to maybe disrupt the hardest industry at the time.

And that is to allow online shopping for things as diverse as fruit, hard goods, meat, eggs, and deliver to your home in a 30-minute window of your choice. It was a very complicated solution, and that's what I loved about it is how do I leverage my experiences and deploy them into a situation where, you know, survival or failure may solely be dependent on the role I play and how effectively I play it.

And the Webvan experience, I was in both the boom days and the bust days. They just happened to be very close together. So for me, I learned a lot about myself. I learned a lot about making bets while maintaining your focus in a highly, ever-changing environment. So it was a disappointing outcome, but personally and professionally, I learned a lot about how to be a more effective leader.

And your second question-- just kind of the compare and contrast of the boom of the internet at the time and maybe the environment today-- I think they're very different. I mean, at the time, less discerning ideas could always get money.

So there was all sorts of ideas that just could find a way to capital. I think the capital of today is a little more discerning. Large companies can be successful. There may be a lot of investment required to get to ultimate success. You can argue about valuations and whether they're too low or too high, but really the difference is back in '99, it seemed like every idea had endless access to capital. And I think that capital is a little more discerning now about who's actually able to raise money.

ANDY SERWER: Two other leaders that you worked for-- Ross Perot, EDS, And Meg Whitman at eBay-- worked as CFOs for both of them, correct?

BOB SWAN: Well, I did, yes. Except I was a CFO at EDS, but Ross Perot when I joined was long gone.

ANDY SERWER: Right. Did you have interactions with him or just the organization generally? What was that like?

BOB SWAN: Well, I did early on when I joined, just because obviously it was a new company, a new culture when I joined EDS. And I found it helpful to learn as much as I can from as many people that had an impact on the formation of that culture over time.

So I had a chance both to engage with Ross Sr and with Ross Jr, who was playing a role in the industry at that time. And they're a source of learning-- a source of learning a little bit about what's the culture about and how do you effect change in a very strong culture?

And EDS had an incredibly customer-centric mindset. So for me, learning a little bit about the evolution of that mindset-- what was the formation of it, of which Ross Sr was a part. And Ross Jr actually in a company nearby, Perot systems, used a lot of those skills his dad developed. So I had an opportunity to seek out insights, perspectives from others along the way. And they were two of the people on the list.

Meg Whitman hired me at eBay to be her CFO. And you know, instincts and courage were two of the traits that I got to learn from Meg-- incredibly smart, dynamic leader. But the things that really were powering strengths is her ability to see information clearer than everybody else. And with that analytical mind, having the instincts and the courage to take action from the information that she was looking at.

So two people that had impacts on my career. And you know, I've been blessed. I've been blessed over the course of the years to interact with some incredibly talented people and have the opportunity to learn from and grow from them over the years.

ANDY SERWER: When you came here and you became the interim CEO last year after your predecessor was found to have an inappropriate relationship, two questions-- one, how did you weather that storm? Number one, and number two, I believe that you said that you weren't necessarily interested in becoming the full-time CEO. Why is that? So those two questions.

BOB SWAN: So you know, to a certain extent, we'll go back to that rugby thing you talked about a while back-- or from jobs along the way where invariably on a team, players go down. And when players go down, the challenge is-- what I've learned along the way is how do you fill that void such that the team doesn't skip a beat even though you lost one of your better players.

And when Brian left fairly abruptly, we were a team that lost, you know, one of our best players and our leader. And the challenge was, how do you step in and fill the void? And I think that's what I attempted to do. That's what the board attempted to do. And that's what the management team attempted to do.

We lost one of our players. What are we going to do about it? Let's step up and take the company to another level. And that was the approach that I used, and that's the approach that the team that I was surrounded with used. And we kind of did that during an interim period, in effect, to-- obviously because the success of the company was, you know, in our hands and we took that serious.

But also to buy the board of directors the time they needed to go through a very elaborate process to ensure that they were finding the right person-- didn't have to react quickly, but took the time necessary to evaluate internal candidates, external candidates to align around who they thought would be the best person to take the company forward.

And I think during that journey-- during that interim time frame, I didn't start, frankly, wanting to do the job because I loved my day job. And over the course in time, I think both the board-- the management team and the employees and myself got increasingly comfortable that I would be the right person for the job. And last and certainly not least, my wife said it was OK.

ANDY SERWER: What about this notion, Bob, that, you know, the CEO of this company going back in history-- Andy Grove, Paul Otellini, Craig Barrett-- they all had these science backgrounds. You don't have that. Is that a handicap? Is that OK?

BOB SWAN: You know, obviously I think it is.

ANDY SERWER: That it's OK.

BOB SWAN: That it's OK. I mean, we're a company that's incredibly rich in science backgrounds. We're not short of maybe the best scientists in the world-- thousands and thousands of the best scientists in the world. So I think we have that in the company.

And I think the challenge in my role is how do you ensure that the science is being applied towards great ideas that will be meaningful for our customers and for our shareholders and help to, through inquisition, strategic direction-- help get 107,000 people working together as one team rather than the brilliant scientists that we have working as multiple teams.

Ultimately, I think that's what's critical for this role. And leveraging the incredible science talent that we have and trying to gear it such that we're taking advantage of what we think are the biggest opportunities in the company's rich and storied history.

ANDY SERWER: The chip business is so wild and crazy these days, it seems to me. And you know, a lot of our people who are watching this are investors, and they see all the different headlines. How would you describe what's going on in the chip business right now?

BOB SWAN: To your point, it's extremely dynamic. And it's one that-- it's an industry that hasn't had this much innovation in a very long time. And all of a sudden, through a confluence of factors, there's lots of investment. There's lots of deployment. There's lots of innovation that's going on in the chip industry that is exciting and is good. And it makes semis more relevant today than they've ever been.

And at its core, there's really, in our mind, three technology inflections that come around over time. And you want to be well-positioned to capitalize on those. One is artificial intelligence and the role that artificial intelligence is playing that makes the ability to digest more and more information and make it relevant, and from that relevant data, allow people to enjoy something or act on it.

So that technology inflection of artificial intelligence is having a profound impact on a lot of industries. And at its core, it's enabled by semis. Second, 5G-- so 5G we believe is a convergence of two extremely important technology industries-- compute and communications. And 5G has them converging. And it has them converging out in the network, out at the edge.

And latencies will require all sorts of new business models. At its core, the deployment of 5G is semiconductors. And then third, just autonomy and then specifically autonomous vehicles as maybe the next biggest use case of compute. What's going on in autonomous driving, a big market where the role of technology will play in impacting consumers' lives is only going to be greater.

At its core is silicon and semiconductors. So as we step back and think about the market that we serve, the opportunities that we have, it's a great time to be in the midst of the semiconductor or the chip industry. Because increasingly, it's not just about the chip inside of a PC. It's the chip and other chips inside of everything.

Because increasingly, everything looks like a computer. So that's the opportunities we have. And those are the technology inflections we're investing behind and the markets that we're going after.

ANDY SERWER: As that relates to your business and your business mix-- 5G, for instance, you got out of the 5G modem space and sort of allowed Qualcomm to fill that gap supplying Apple. The lawsuit between those two companies was settled, and Qualcomm's got all kinds of issues itself. There is that.

Do you have shortages in some areas of chips that you're looking to make at this point? So what is the mix-- the product mix there?

BOB SWAN: Well first on the technology inflection of 5G, what we think is most important for the industry and the role we'll play is at the network-- again where this convergence of compute and communications will happen at the network, at base stations that will allow all sorts of new business models.

When we say leading in 5G, we think that's where we have a unique place to play. A component of 5G is the modem for the smartphone, right? And what we said that we are exiting was the modem for the smartphone--

ANDY SERWER: For the phones, right.

BOB SWAN: Not necessarily the role that modems may play in all the other devices at the edge, but for the smartphone in particular. And the reason simply was we tried to use three criteria on technology inflections and investments we'll make. One, we want to be a leader in technology inflections that really matter. Two, that it helps us play a bigger and broader role in our customer success. And three, we can make money for our shareholders.

We concluded that in the modem for the smartphone, where we really only had one customer, that the likelihood and the probability that we were going to be able to make money was just not there as we look forward in light of the dynamics of the market. So with that, we announced the exit of the smartphone modem as we evaluate opportunities as to what the modem will mean at the edge going forward.

ANDY SERWER: Any shortages for your customers right now?

BOB SWAN: So unrelated, we had-- I talked earlier about our record year last year. The year before closed extremely strong. Our growth was much stronger than we expected. The implications of that is we ended up in a position where we didn't have enough supply to meet the growing demand of these chips for these computers that were taking new different shapes.

So we found ourself in a situation in the latter part of last year and through the first half of this year where demand was exceeding supply. So we had to work with our customers to prioritize what products made the most sense for them. And those products that were less important through their eyes, we were short.

And our expectations are from increased investments we made last year and this year is that we will be supply enabled as we go into the second half of this year.

ANDY SERWER: It's kind of a high class problem, right?

BOB SWAN: It's a good problem, but it's a problem. Customers-- they count on us to have technologies for them. And we want to be in a position to provide them the technology that they need to help their businesses grow.

ANDY SERWER: Is Intel being impacted by the trade war with China and also the issues that the US government has with Huawei?

BOB SWAN: China is a big market for us. And we've been operating there for 30 years. And we've been operating in multiple ways. We have a lot of customers in China. We have a lot of global customers who do assembly in China. We have great technical talent in China. And we have a fab. And we have an assembly plant.

So it's a market that has been very important to us over the years-- both the market itself but also the role that it plays in terms of global supply chain. So the dynamics of tariffs impact the flow of goods. So we've had to work with our customers to, in light of the situation, how do you use your capabilities as a global supply player in the industry to effectively mitigate inherent risk imposed tariffs have on the flow of global trade.

And that's one that we work with our customers. And we do it within the rules. So in the second part of your question, Huawei is an important customer of ours and a partner of ours over the years. But at the same time, you know, we operate by the rules of the road in the countries in which we operate. And so currently, the US export control laws impede our ability to do some things. And we have to abide by that. So it has impacts on us.

Most importantly for us is as a company and as an industry-- the semiconductor industry-- we believe strongly in open, global, and fair trade. And we advocate for that the best we can along the way.

ANDY SERWER: What about M&A? Infineon just purchased Cypress. And you know, you've seen all the steel-making over the past several years. Is that a part of your playbook?

BOB SWAN: I mean, it has been a part of the playbook in the past. Over the last several years, as we think about this transition from a PC-centric to a data-centric world and the need for new architectures-- not just a CPU but a GPU and accelerators and A6 and AI chips-- in that world, we've made a couple acquisitions ourselves over the last several years that expand the role we play in the industry.

Altera-- with the FPGAs they provide, it allows us to capitalize on a technology inflection and play a bigger role in our customer's success and generate returns. So Altera three or so years ago, and then a couple of years ago the acquisition of Mobileye that essentially allowed us to bring, with Mobileye's success and with Intel's technologies, play a much bigger role in what we think is going to be a critical technology inflection, which is autonomous driving going forward.

So acquisitions have been an important part of the makeup of our company in this increasingly data-centric world. Our focus right now is on making those acquisitions work.

ANDY SERWER: Right. As opposed to going shopping right now.

BOB SWAN: Our focus is on making those acquisitions work.

ANDY SERWER: Got it. What is your business telling you about the state of the economy right now, Bob? What do you see from your customers?

BOB SWAN: Well, we've said-- we're a very global company. And we have, obviously, enterprise clients and consumers-- consumer clients who purchase who purchase PCs. And we've seen a few things. One macro level last year with the enterprise clients was a record year for the industry and for our business. And in the first three months of this year, we saw quite a bit of slowing down in purchasing for our cloud customers and our enterprise customers.

And we think that was the medium and long term trends of needs for data-- storage, process, analysis, compute are relatively strong. But the digestion of last year's purchases is taking a little bit longer than we expected. So things this year are a little bit slower, and people have paused a bit as they digest their record purchases of CPUs last year.

That's a fairly macro thing. A little more micro-- our market in China slowed quite a bit. As I mentioned before, China is a big market for us. And we saw a slowing of demand on both the cloud, enterprise, and PC fronts in the first-- exiting last year and in the first three months of this year. So that's a bit more of a micro climate.

And then third, we've seen very strong commercial demand for PCs-- so CIOs refreshing their technology.

But we've seen consumers' purchase of PCs continue to be relatively soft. So in the aggregate, the trends that we've been investing behind of technology inflections because consumers and enterprises want more data, those trends are very strong.

Digesting previously acquired equipment, China in particular, and then consumers on the PC a little bit slower are kind of the trends we see. So medium, long term, we feel great about the industry and the role we play and the level of innovation. Right now, we're on a bit of a pause.

ANDY SERWER: But a recession signs-- anything that you see there?

BOB SWAN: No, I think we're coming off a real strong nine years. And last year, a strong US economy-- stronger, and global economies all relatively strong. So it's just not quite as strong as what we experienced last year.

ANDY SERWER: And finally, Bob, this program is called "Influencers." And so my question to you is how do you want to use your influence as a leader going forward?

BOB SWAN: Well, I think there's multiple ways. But if I talk about how we use maybe social priorities to influence becoming a stronger and better company-- at its core, diversity and inclusion. So for me as a leader of this company who has always had a very front-footed role in embracing the power of teams and the performance of teams through a both more diverse makeup in our employee base but also inclusion so we get the best of everybody's contributions in everything we do.

And the role of CEO gives us that opportunity to really put our personal stamp biases on things that we think are extremely important, not just for society at large but because it makes us a stronger company to build better products for our customers. Diversity and inclusion is very important to our company and very important to me.

ANDY SERWER: Bob Swan, chief executive of Intel. Thank you so much for your time.

BOB SWAN: Thank you. Great to be with you.

ANDY SERWER: You've been watching "Influencers." I'm Andy Serwer. We'll see you next time.