Faulty Intel

Former Intel exec Craig Barrett yesterday became the latest from the microprocessor company to pitch the dubious claim that the US tax policies are decimating the industry.

Just a month ago, Barrett’s successor and current CEO Paul Otellini criticized the US government for a range of what he called anti-business approaches. And Intel cofounder Andy Grove touched off the pressure with a piece in Business Week in July, in which he tackled the issues of growth with more political savvy than did his colleagues but equal conviction.

While Grove was sensible enough to couch his plea in terms that relying on startups to innovate the US back to the center of tech universe isn’t a panacea, each of the Intel execs put the onus on the US government to fix the industry’s woes.

To be sure, government policy should be designed to promote growth, job creation and innovation while at the same time not screwing over the little guy. In fact, however, conceptualizing and executing the perfect is far from easy.

There are certain contradictions in the Intel PR campaign. Barrett and Otellini want government to loosen the chains, while Grove asserts the US policy of a free market penalizes domestic companies. Further, Grove’s thesis centers around creating jobs in the US, while his colleagues seem more concerned with generating greater profits for Intel (and no, the two don’t necessarily go hand-in-hand). The troika agree, however, that tax policy must change, insisting that the US corporate tax rate is the highest in the world. What this omits, of course, is that more than 67% of American businesses pay no taxes (for the record, UP Media Group isn’t one of them. Perhaps we need better accountants.)

As Forbes pointed out in May, General Electric had anĀ  2008 effective tax rate of 5.3%, and while its 2009 pretax income was $10.3 billion it not only paid no US tax, it recorded a tax benefit of $1.1 billion! Intel’s own tax rate was about 23% last year and in 2007, and 31% in 2008.

What Intel is suggesting is intellectually dishonest, and unbecoming one of the great American tech success stories. And, not to be too cynical, but it’s impossible not to note that while Intel’s stock price is listing, plenty of its competitors seem to be doing just fine.

It’s time Intel looked inward, and stopped blaming everyone else for problems that are largely self-created.

When Chips are Down, Don’t Call the Bean Counter

Methinks Paul Otellini is feeling the heat — and I don’t mean the kind from his company’s chips.

The first non-engineer to run Intel, Otellini complained this week that the US government isn’t doing enough to create jobs.

“I think this group does not understand what it takes to create jobs,” Otellini complained. “The next big thing will not be invented here. Jobs will not be created here.”

True that, as long as OEMs like Intel use domestically trained engineers to move all their design to lower-cost nations not for intellectual reasons but to save a few bucks. The inconvenient facts Otellini so casually ignores are that American companies are sitting on record cash reserves, and no one would claim the US government should be in the business of forcing them to spend their treasure.

Ideologies aside, this is a tired canard. One can’t logically complain government inherently is the problem and in the next breath say that government needs to solve their problems. One can’t complain government isn’t doing enough to protect their IP and in the next breath say the laws are too onerous. That’s just whining.

In fact, even Otellini doesn’t seem to believe his own words, having at a conference last fall credited China’s rebound in part to its stimulus package. Let’s get at what Otellini really wants: A government handout. He is oh-so-proud of having garnered what were effectively tax-free plants in China, without stopping to consider that such blatant corporate welfare places the burden on the individual taxpayer. (Keep in mind, however, what you and I pay in taxes is not his problem.)

Still, based on his comments, one could picture Otellini formulating the following financial strategy:

Taxpayers give money to the government, which gives it to companies, which invest it in Asia (or just sit on it).

I’m just not sure what problem that solves.

Does Otellini really think China is a long-term answer and that its intentions are benign? Has he not considered the possibility that China and other poor Southeast Asian nations are doing anything they can to attract wealthy businesses, and that once it has the supply chain monopoly in place, those businesses will be forced to pony up? Intel is a pawn in a much bigger game, and he is betting his bank that he can cash in his chips before the house calls.

With Intel’s stock trading at a 52-week low and new research reports — coincidentally, I’m sure — projecting Samsung to overtake Intel as the world’s largest semiconductor supplier in the next three years, my guess is Otellini’s comments come from his ego and his wallet, not his head. And maybe Intel’s problems stem from having a bean counter, not an engineer, at the helm.

Aug. 30 addendum: A-ha! Intel just announced it is lowering its third-quarter forecasts. Otellini’s comments are sounding more and more like sour grapes.