Mr. Hite, what was Intel's motivation to expand its activities to Mexico six years ago and could you say today that you met the expectations you expressed back then?
Actually, we've been in the local market for 7 to 8 years, with a legal presence, and prior to that we were represented by a local representative in Mexico. Intel's fundamental purpose for going to countries around the world is that we have global strategies that we intend to implement locally. Our mission statement as a corporation today is to be the leading block supplier in the worldwide Internet economy. About a year and a half, two years ago, we changed the previous block supplier to the XXX industry worldwide. So, there's been a significant shift in the statement mission of the company to go beyond the computer itself to the entire worldwide Internet economy and Intel has been making substantial investments in those different areas. Our objective in coming with our own presence 7 to 8 years ago, was to work in the deployment of that corporate mission of being the leading chip-manufacture supplier of the computing industry, here in a local level. It was around the time when NAFTA was signed. Of course, you're familiar with the incredible investment that was made in Mexico, especially as represented in the cover you see here with the maquiladoras. So, a lot of the multinational that produce the CDs, electronics, SCI, etc., are located in Mexico as well as just about any contract manufacturer on the face of the earth. These are all large customers of Intel in our traditional business of the computing platform, microprocessors, boards, chips, etc. We established a presence here to work, not only in our support of them for sales, but also to support the local distributors because there's a native industry in Mexico that produces PC platforms (You've heard of them as the local integrators). And the local integrators provide around 35% in our estimates of all the PC's consumed in Mexico. These could be small companies that perhaps make MTCs for larger local brands, like BTC, Olivetti. That is a second reason for being here. We've also worked very closely in our marketing programs with the retail channels establishing preference awareness and preference in conviction for the Intel brand (you know, the whole story behind the "Intel inside" logo), promoting all those marketing efforts and to work at an influencer level with end-users, going to corporate accounts, not only large enterprises but as well in small and medium enterprises and influencing their purchase decisions towards Intel technologies. These are individuals who "evangelize Intel architecture," so when an IT department makes a purchase, we're agnostic what brand they buy as long as it has Intel inside.
Intel is the largest chip manufacturer in the world and, as a matter of fact, 8 out of 10 PCs are based on an Intel platform. What are the main products of this segment produced in Mexico and what percentage of the company's manufacturing is carried out here in Mexico?
Actually, 0% of our manufacturing is done in Mexico. Intel has considered Mexico, as well as other countries in the world, for a manufacturing facility in the past. We've not made the decision to invest in a manufacturing facility in Mexico to date. All of our manufacturing facilities worldwide, in whatever country they're in, whether in Asia, the USA, Europe, we do have one in Costa Rica, have as a mission to supply product for worldwide consumption. So we don't build factories regionally that then serves only a specific region. Our factory in Costa Rica manufactures around 1/3 of all the Pentium processors consumed in the world and that 1/3 gets consumed all around the world, including Latin America. And, in addition, we have manufacturers in New York, the Philippines, etc. One possible exception would be the EU, where having and established manufacturing facility in Ireland, provides certain benefits for the purchase and consumption of our products there. We have an Intel team, whose sole role is to go around the world and evaluate future potential sites for a manufacturing facility. It's always a topic discussion here in Mexico.
On Friday Intel announced that its 3Q00 revenues will be significantly below Wall Street expectations of 9 to 9,1 billion dollars. As a result Intel shares lost 22%. Is it just the European market which is slowing down, how is the Mexican market developing?
Optimism is extremely high within Intel from our point of view on what the world decides to consume of our products. The announcement that we made about our revenue earnings last Friday after the market closed, where related entirely to the business in Europe, and its interesting a relative perception because we're still going to have record revenues for the third quarter this year coming in something from 3 to 5 per cent greater than the record revenues we had in the 2Q of this year. But, as you pointed out, it's beneath the expectations over 2Q this year that was predicted. We had the obligation, being a public trade company, to provide that sort of pronouncement when we think it's on the best interest of our stockholders. Personally, as a shareholder, I think it's a great buying opportunity right now.
Missing 3Q revenues are surprising, because it's a traditionally strong one for this industry. That's why I'm asking about the reasons, which might have influenced this outcome. Other factors than the ones you mentioned already could be, that Intel is loosing market share to its rivals, or the fact that Intel increased its R/D expenses. How much of Intel Mexico's cash-flow is dedicated to R/D?
In terms of the reasons behind it, in addition to the issues that are going on in the EU economy, with the Euro dollar. When we look back at the history of our business in Europe, July and August are always the softest months for European business. When you think about the way the Europeans take vacations, it's a little bit obvious. They take the whole month of July or the whole month of August, or a substantial amount of both of those months. Consumer activity drops down, business focus drops off. I've been with Intel for 17 years and one of my previous assignments was working specifically with our European business on the development of XXX computing market. This was a number of years ago, I stood base in California. It was nearly impossible to get any work done in July and August because all my counterparts at Intel were not there. Everybody who was in our customer base was not there either. So, the historical soft period for Europe, a couple of the economic issues, really were the driving elements.
I think another part of your question was research and development. Intel makes external investments in the range of billions of dollars a year, as well as capital investment and RND to maintain our leadership as a technology provider. We feel that it needs an appropriate amount of investment to keep on with the development of microprocessors and all of the computer platform technologies. But, in addition, we've expanded our businesses dramatically to include networking, communications, servers, and certain solutions and services that are all part of the Intel product portfolio. Those take a significant investment. Secondly, and this is an investment that has added some really extraordinary payoffs, we have begun a much more aggressive venture capital portion of our business. It's an internal group called Intel Capital. It's role in Intel Corporation is to expand the use and users of our technology. In some cases it's minority investments that we take in small private companies. In other cases, it's been investments that we've made in public health companies. In other cases, it's been in acquisition of other companies that have either complemented areas of Intel expertise or areas where Intel needed to strengthen its particular portfolio. In the portion of that Intel Capital business that is investment on other companies we have around a 12 billion portfolio today that has been amassed over the past 7 to 8 years, a significant amount of this activity just over the previous 3 to 4 years. I think in the last three years we have on the order of around 350 distinct investments. That's another space where a lot of our cash goes and we see that as an appropriate investment to be making for the adoption and deployment of the Internet economy worldwide. If you think about our development as a company in terms of the success that we've had in the PC market place, we've mentioned that 8 out of 10 of all PCs turn into a processor. That's a pretty fair estimate according to ITC and DATAQUEST. We standardized the platform along with other PC technology providers and that economy of scale drove the cost of PCs to a very affordable level for a lot of people. We can have another discussion about developing economies and emerging markets, poverty, etc. But there are hundreds of PCs being consumed on an annual basis. And ten years ago, when I was Worldwide Product Marketing Engineer for XXX, the PC market was not in the order of 20 million PCs a year. So, the investment we are making in research and development, capital equipment, and Intel Capital areas are oriented towards the same sort of hoped for result. By providing horizontal industry, were you have a hardware platform that nearly all operative systems in the world can port to, then nearly all software applications in the world can find a place in their interoperability with less expensive solutions to the acceptance in deployment business of this new economy on a worldwide basis.
The semiconductor industry, Intel's traditional core-business, has been troubled since the middle of the year, following a two year rise in chip sales. Today the expectations are, that there will be a slow-down in chip demand in all the markets around the world, except Japan. Do you agree with this statement and why would you say Japan is the exception?
No, I don't agree there's a slow-down in demand. From Intel's point of view, we see a very strong demand on a worldwide basis. There are economic slow downs in the chip industry, as we see in the specific geography of Europe, but even the President of Intel was traveling in India four months ago, he was quoted on saying that he doesn't see worldwide supply of semiconductors catching up with worldwide demand of semiconductors for the next 12 months. This being 3 or 4 months ago, we still have 9 months of that period of time left. Intel has made some news lately because we have not been able to supply enough of the chips to satisfy the demand that our customers are asking for. That's a problem from a manufacturing point of view. And trying to see our customers' point of view, it's a good problem to have in the sense that there's a large amount of demand for our product. It's an unfortunate problem to have in the sense that, as an industry, the semiconductor industry is not able to anticipate and forecast the type of demand that would be created by this Internet explosion and have the capacity in place to serve all of that. I see demand strong on a worldwide basis.
For Japan, it's interesting to note the way Intel divides the world up in how we serve the world from a sales and marketing internal organization point of view. We've, of course, got the big executive on top that runs worldwide sales and marketing. And then we split the world into four traditional pieces, and that was Europe, Middle East and Africa; the Americas, which was Canada, North America, Central and South America; Asia Pacific, which was everything except Japan; and then just Japan all by itself. Japan having a very strong native PC industry with some of the largest names in computing, especially the mobile computing space, and for whatever reasons has been one of the leader doctors in a number of Internet technologies and is now showing itself as a leading doctor in wireless technology for the network. The geography that we added to the four physical geographies, of course is the electronic commerce portion of Intel. Our hardball is to become a front-end to back-end full e-business corporation by the end of 2001. We are already in the neighborhood of 75% of all of our revenues are generated via the web. Nearly all of our customers are connected and placing the orders on the web. We've gone to companies and countries around the world to design solutions for them to improve the way we do business with them so we can move our business to the Internet.
How do you foresee the future of e-commerce solutions here in Mexico and what are Intel Mexico's steps to meet the new demands of a rapidly changing Internet market?
Let me break it into two pieces. One dealing with
consumers, and something that happened inside of
Mexico that was very creative that allowed end-users
to connect to the Internet. Telmex, with its telephone
business already had the installed competency of
having to send the bill to every single user of
the Telmex telephone service every month so they
could pay their telephone bill. Within this group
created by Carlos Slim, he is also the owner of
Prodigy Internet Service. Telmex took the Prodigy
Internet Service and bought a whole bunch of PCs,
sold them to end-users who were users of their telephone
service by saying "Give X amount of dollars
downpayment, you can choose among these different
kind of PC and then we will charge you a rate every
month for 24 months." You were charged from
49 dollars to a couple of hundred dollars, depending
on the model. And you got your PC and your Internet
connection and you got billed through your telephone
bill. It was a widely successful program, it's still
going on, that accomplished driving users to Prodigy
Internet Service. But it really made a huge contribution
to Mexico in the sense that it wired up a whole
bunch of more people. We could discuss all day about
fix phones and cell phones. If you take the 8 million
cell users and you say there's 11 million fix line
users in Mexico, it doesn't mean there's 19 million
Mexicans with a telephone. Many of the cell phone
owners are probably the people that have the fixed
lines. We'd have to ask Telmex how many of the people
that blocked the PCs they believe are really in
the socio-economic levels that were advantaged by
this program because the Telmex offering with Prodigy
Internet overcame the fact that the people in that
socio-economic level didn't have access to credit
yet could afford $100 dollars a month when choosing
one particular option. The worldwide information
available to anyone, regardless of the language,
will be more and more but it's a good thing all
by itself just that information is there. |
Looking at the traditional network, Mexico has a number of advantages that play on its favor: it's border with the USA. We can't argue that the USA is the largest economy in the world. We've got enormous advantages for those who share the border. NAFTA provided an enormous advantage to Mexico. Mexico with its agreements with so many other places in the world is a huge advantage. Education level and infrastructure are very high in Mexico. And all of these elements Mexico can use to its advantages in being a leader in Latin America for the adoption of e-business. It has many of the necessary ingredients to use this sort of strength for adopting electronic commerce.
Nevertheless, Mexico is struggling to promote the use of Internet in order to benefit as well from the advantages of e-commerce. There's still a lot to do.
Certainly, there's an enormous amount to do. There's a lot of strengths Mexico can play on and they're in the process of taking advantage of those elements. Only within the last handful of months there's a legislation actually passed that made an electronic transaction recognized legally. It wasn't illegal to make an electronic transaction, it's just that it was not even noticed as having been a legal transaction.
Intel, in order to face the new challenges and opportunities of this Internet world and getting ready for the new millenium, is going through a period of mergers and alliances. Not long ago, Intel announced its "Mobile Data Initiative Next Generation" project together with other companies to develop server technology. What is the background of those developments and can we expect any more similar developments in Mexico?
In terms of the background, I would go back to something I mentioned earlier about creating a horizontal industry that drives an economy of scale so that you've got operating systems, software applications, written around an open and standard platform, e-commerce solutions, business to consumer solutions, etc. You can mix and match from the providers of your choice and they all function together because it's an open platform. That's very much unlike risk platforms, for example, where you've got proprietary solutions that come from a number of different vendors, some of whom are our customers with Intel architecture, and some of them aren't. It's a bit like "communism" being in vogue, as opposed to an open large economy of scale. That's what's behind our alliance with companies such as NEC. How we implement that similar strategy or tactic is working with the local providers of e-business solutions in the local market creating agreements or alliances with them so that together we can go and address large industry, small and medium enterprises in Mexico with a more complete solution, a solution built on an open architecture that has proven stacks of software that have been integrated with it. It's on a much smaller scale and normally does not require a large investment in terms of making investments in the company in either direction but more in how we cooperate with our sales and marketing courses and dollars to try to get more efficiency out of our spending as possible, whether it be a seminar, a collateral, a testimonial, a video or whatever.
What would be next step in the company's investment or expansion strategy?
We look to invest in two specific ways. One way is obviously put money in. The world has not had any shortage of money to invest in good ideas, so that's really not the chore of competency that XXX in investment. In addition to wanting to make a return on our investment, we want to enable the companies' success in whatever products or services they are offering. When we view a product or service that is consistent with our goal as Intel corporation, which is to expand the uses and users of the Internet and our technologies, much like the PC platform again where I could draw analogies, to create an open platform where all the manufacturers design for the same basic building block and we are happy even though our competitors can design a similar 486 chip, we're happy to compete for our fair share of that market. Similarly in the space of the Internet economy, create a completely open environment where our technology can play and we're happy to participate with whatever products or services we have and compete aggressively for our fair share of that market. So these are companies which could be providing some sort of business to business electronic tools. We have invested in the past in portals, such as Star Media. At that time it drove users to the Internet in Latin America. In the year 2000, we are thinking on 15 distinct investments in Latin America and we are looking somewhere around the 25 range for the year 2001. So, we have individuals that are part of Intel Capital's team, that work for Intel Corporation in Latin America, including Mexico, Brazil and Argentina as well, they are identifying companies to invest on them to expand the use of Internet in Latin America.
Where is the main share of Intel's investments flowing to and where would you expect the greatest growth opportunities?
Business to business, solutions that enable or allow the adoption of business to business transactions over the Internet. If you look at all the estimations about what the value of transactions are going to be totaled in dollars over the Internet by the year 2001, first of all, every few months, all of the agencies that do all that forecasting find another extraordinary percentage. There will be trillions of dollars by 2004 or 2005. And if you look at the division between transactions that would be made by consumers buying products trough the Internet versus the value of the transactions that will happen between businesses, somewhere around 85 or 90% of the entire value of transactions will be business to business. One company, all by itself is on the order of around 2 billion dollars a month in revenue over the Internet and they started from zero a year and a half ago.
As you mentioned already, there are no concrete plans to establish a manufacturing facility in Mexico as for today. Nevertheless, being aware of the growing importance of Mexico as a worldwide trade platform, what are your specific projects for Mexico?
We do not have a plan to make an investment for manufacturing in Mexico today. Mexico is a country that remains very interesting for an investment like that from Intel Corporation. There's only a certain number of factories you can build in any one given time. Intel builds a new site at about one per year. There's a lot of interest around the world in attracting an investment because these are ½ a billion to 1 billion dollar investments, if we're just doing the back-end manufacturing. If you started investing in fabricating the actual silicone chips and cells, that can run on the order of 2 to 4 billion dollars for a factory. For example, our investment in Costa Rica is worth 500 million dollars, and that's only in our assembly and test operation, there's no fabrication facility there. So Mexico remains an interesting option in the field of options that are so numerous and available in the world. For other types of investments we are considering, we are increasing our headcount in Mexico, from 25 employees (when I came) to the double by the end of this year.
Are these employees Mexicans or do you have personnel coming from abroad?
They are exclusively Mexicans with the exception of myself and one other individual who moved from our office in Bogota, Colombia (a Colombian guy), as an internal transference within Latin America.
Do you find it difficult to find well-educated, skilled personnel?
In Mexico, no. I think that if you take Latin America as a whole, given some of the infrastructure issues with telecommunications, the infrastructure system and the rate at which the adoption of the Internet will occur. Once it does start in force, there will appear to be a need for countries across Latin America to begin solving those infrastructure, education and telecommunication issues or there will be a large disparity between the knowledge workers and the output of the industry that is using those knowledge workers and the other very high percentage of the population that is still challenged with not owning a PC at all. Some people talk about crossing the main barrier to find PCs and credit to own them, not only in Latin America and that's an education barrier. That's an are that we are investing from Intel Corporation in education as an area to drive investments towards Latin America for the year 2001. I'm the Director General of Intel Mexico, which is responsible for all our presence in Mexico, but I currently have the privilege of also acting as director for Latin America. The director for Latin America is out of pocket for two months and I'm in the midst of running the territory and also in the midst of the calendar period when we plan for 2001.
What would be your personal background?
Quite by fortunate accident, I've been with Intel for 17 years. I started right out of my graduate studies. I was a humanities mayor. I'm an engineer by background training. I started as a manufacturing supervisor doing testing, this was before all the automation hit the manufacturing chore. We tested each item individually, now it's all done with robots and TV monitors. I sort of created my own rotation program because I had the desire to take on a general management type of position. So I spent 3 years manufacturing which is Intel's chore competency, we are a manufacturing company with an amazing marketing machine. So, from manufacturing I needed to go to resources to understand more about it. From there into a part of marketing with the 286 that is still there, and then I was a product marketing engineer the 36SX. Then I spent some time in our mobile computing division marketing our mobile products. From there, I went to Asia-Pacific where I became the regional marketing manager for all of our products that were not microprocessors. So everything that had nothing to do with the chore business, it was still a piece of silicone, flash memories, microcontrollers, POD, etc. And I did business development and marketing development in the Asia-Pacific areas. About 50% of my time was dedicated to Mainland China. I lived in Hong Kong, that's were my family and apartment was but I actually lived in Beijing at the time. From Asia, after about 3 years, great experience in different skills and markets, I made a free stop back in headquarters in Internet marketing and became really familiar with what Intel is doing in the Internet, which was sort of lucky at that time because we had not yet announced any business or e-commerce initiatives as the company was more related to our Intel.com presence. I learnt a lot about the web. I spent about nine months in XXX Latin America. I don't know if I was the best guy qualified to start the office in Bogota or the only guy standing on line to do that, but we started the office there and from there we served Colombia, Venezuela, Ecuador and Central America. Mexico had its headquarters, as well as Brazil. And then we had an office in Buenos Aires and Santiago, Chile for selling in Latin America. After my two years in Colombia, I had the opportunity to come up to Mexico, a bigger job, a bigger step and much more contribution to Intel on the perspective of our revenue stream because there's such a large amount of manufacturing at this place.
Thank you very much
I love interviews! |
Intel Mexico 