Barrett's message to Intel employees [including: Intel's Position on Corporate Accounting Scandals]

Intel's accounts are whiter than white

By Mike Magee: Wednesday 17 July 2002, 08:22

JOB CUTS AT INTEL will still leave the firm with around 80,000 employees, the size of a small town. And like a small town, Intel has its own newspaper called Circuit News.

Craig Barrett, CEO of Intel, used Circuit News to deliver a webcast to his employees yesterday which varied in some details from the official statement on its second quarter results.

The article is interesting about Intel's view on company trading during the entire Enron debacle, and we don't think that using the word BUM as an acronym is a good idea.

Here's the entire article from Circuit News:

Barrett warns Employees that More Tough Times Lie Ahead
Intel CEO Craig Barrett warned employees Tuesday that more tough times lie ahead, and as a consequence a reduction in employee headcount by about 4,000, through attrition and other means, will likely be necessary by year's end.

Barrett spoke in a Webcast on Intel's earnings for the second quarter and the ramifications of those earnings to Intel's outlook and strategy for the second half of the year and beyond. Barrett also used the digital podium to detail Intel's position on the recent spate of accounting irregularities by major firms, starting with Enron.

His presentation was made simultaneous to one delivered by Intel President Paul Otellini and Andy Bryant, chief financial and enterprise services officer, to Wall Street analysts. It marked the first time Intel used the occasion to deliver dual presentations. Barrett said he took the step to provide employees "with as much information as soon as possible about our financial and competitive performance," and because sometimes analysts who write about the company's performance misinterpret the facts and "get it wrong."

Barrett's presentation was organized into four topic areas: 1) a review of Intel's financial performance for the second quarter, 2) Intel's progress toward emerging from the recession in a stronger competitive position than it entered, 3) actions the company would take in the second half of the year to control expenses and improve profitability, and 4) Intel's position on accounting practices and pending legislation that could stiffen penalties for executives who commit fraudulent acts.

Financial Performance in the Second Quarter
Barrett said that a basic assessment of Intel's performance in the second quarter reveals "our poorest bottom-line quarter in several years." He said part of the problem is the company's decision to close the Intel Online Services business, which resulted in a $100 million write off, and to a write off the company took in connection with the purchase of Xircom. But, he said, the main reason for the poor performance is an overall shortfall in Intel's business.

He said the results are disappointing in light of better-than-expected results in the first quarter, which led to optimism that "faded as Q2 unfolded."

"The final number of $6.3 billion was within the range of our [revised] estimate," he said. "But the obvious damage had been done before the quarter ended."

Barrett said Intel's track record led the market to expect growth, and the lack of growth during the quarter led to a significant reduction in stock prices.

Looking forward, Barrett said there is some indication of growth in the gross domestic product (GDP), but that the growth is primarily driven by consumer spending, and there would likely be a lag until it translates into corporate profitability. He said Intel is advising the financial community to expect only a slight improvement in the third quarter, "mostly as a result of expected seasonal improvements in PC sales."

Getting Competitively Stronger
Barrett said the company formulated two fundamental programs for emerging from the recession in a stronger competitive position, and that the two initiatives are showing results. The two programs are Operational Excellence and One Generation Ahead (OGA).

He said Operational Excellence is simply excelling at the core Intel values in product development, sales, manufacturing, marketing, finance, and in other key business areas. The program was put in place to boost Intel's performance and thereby its competitiveness.

Barrett said OGA, an offshoot of Operational Excellence, seeks to create products, services, and technologies that are one generation ahead of the competition, thereby placing Intel in a position of strength.

He said that as a result of the programs, "we are winning the performance race for desktop and mobile microprocessors and we are winning market segment share from the competition. This is exactly what we set out to do, and it is being accomplished."

Barrett said the program was also succeeding in the server market segment, where Intel is very strongly position with its new 64-bit processor, the Itanium® 2 processor and in flash memory, with the recent launch of the world's fastest flash memory products.

"In the networking side of our business we continue to be the leader and gain market segment share in fast Ethernet connections," he said, adding that optical components and advanced manufacturing capabilities also continue to be competitive strengths.

"So we should all be pleased with the progress we are making," said Barrett. "Unfortunately this does not compensate for the poor economic conditions in which we find ourselves."

Improving Profitability in the Second Half
Barrett said Intel will continue in the second half with a resolve to invest in research and development and in manufacturing technology so that the company is strongly positioned for recovery. He also said the company will continue scrutinizing its business investments to determine which areas are not key to the company's future, and which are not providing an adequate return on investment.

"The recent decision to phase out Intel Online Services is an indication of our intentions here, as were several other actions during the past year," he said.

Barrett said the decision to exit a business is not necessarily an indictment of employee performance, but rather a result of a depressed business climate in certain areas.

He said Intel will also continue to closely control discretionary spending and employee head count. He said the latter will be necessary until revenue grows to historic levels. He went on to say that headcount reduction is necessary because current revenue levels, which are hovering at levels last seen in 1997, cannot be expected to support an employee base that is significantly larger now than it was then.

Barrett said that during the past year the company was able to trim its headcount by some 7,000 employees through a combination of attrition, redeployment, and selective voluntary separation programs.

"With the current extended slowdown, I do not see any other option than to continue to trim our headcount through these programs," he said, adding that further reduction would involve local actions "where there is little hope of effectively redeploying people because of skill or geography mismatches."

Barrett said current forecasts indicate a reduction of some 4,000 employees would be required by the end of the year, and that more details would be available at the next quarterly Business Update Meeting (BUM).

"I realize these are difficult and sometimes painful adjustments," he said. "Just like all of you, I hope that we will see a recovery soon, and these headcount reductions will end."

Intel's Position on Corporate Accounting Scandals
"First, I want to state that I am confident that Intel does not and will not ever do anything that is considered illegal or unethical in the area of financial reporting," said Barrett. "It is against our basic culture, our basic beliefs, and our basic ethic to mislead investors or the financial community."

He said he endorses proposed legislation in the U.S. that would toughen penalties for misrepresenting corporate finances, adding, "any corporate executive who participates in fraudulent activities should be punished."

Barrett said that because of the seriousness of the issue to businesses worldwide, Intel will institute additional training for certain employees in the area of accurate financial reporting.

"We are not doing this because we have concerns about our behavior," he said. "We are doing it to reinforce our already strong culture in doing the right things right."

Barrett closed the session by warning that more tough times lie ahead, but that the company will continue to work to enhance its competitive position, with an eye to the future. He said employees can help by continuing to work toward Operational Excellence, by developing products and technologies that are one generation ahead of the competition, and by closely monitoring business trends so that Intel is well positioned with the right products and services to take advantage of the convergence of computing and communications.

"I believe we work for the best company in the world and I am very proud of our progress and discipline in these tough times," he said. "Let's all continue to do a great job and stay focused on our strategies.

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