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Technology companies need technologists in charge
Intel's early leaders were deeply technical. When one executive joined the executive staff for the first time, about 15 of the 20 people in the room held PhDs. Later the company came to be run by business and finance people, who tended to promote other business leaders, and a technical leader did not take the CEO job again for roughly 15 years.
The spreadsheet logic produced choices a technologist would not make. In the five or six years before a technical leader came back, Intel gave $100 billion to shareholders through dividends and stock buybacks. It had not built a new factory in a decade.
Those investments pay off when the technology trends make them the right ones, even when the economics on their own look poor. The great technology companies today are deeply technical and typically founder-led, and the CEOs of Microsoft and Google are not founders but are deeply technical individuals. In a technology business, technologists run the company, and they hire technologists for the staff, who hire the best technologists below them.
Who were Intel's founders, and what did they study?
Intel was founded in 1968 by Robert Noyce and Gordon Moore, and Andy Grove joined as one of its first employees. Noyce held a physics doctorate from MIT, Moore a chemistry doctorate from Caltech, and Grove a chemical engineering doctorate from Berkeley. Noyce co-invented the integrated circuit, and Moore's 1965 observation about the doubling of components on a chip became known as Moore's Law. Grove later served as CEO from 1987 to 1998.
Why do buybacks compete with building factories?
A company has a fixed amount of cash each year, and every dollar paid out in dividends or used to repurchase shares is a dollar not available for equipment. Chip factories require commitments of billions of dollars years before they produce revenue. Buybacks reduce the number of shares outstanding, which lifts earnings per share in the short term. Intel's capital spending relative to its rivals' became a recurring subject in analysts' coverage of the industry.
Why do chip investments look poor on a spreadsheet?
A factory is built for products that will not exist for years, so its returns depend on forecasts of demand that can be wrong. The equipment loses value as each new generation of chips arrives. Because the payoff arrives long after the spending, a model that discounts future earnings can make the project look weak. The first two or three years of a new factory typically produce losses before volume builds.
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