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 an  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.

A Shout for Halla

Brian Halla’s name doesn’t generate the same level of nods and recognition that goes with, say, Andy Grove, Gordon Moore, Jerry Sanders or Jerry Junkins.

But as the leader of National Semiconductor for the past 13 years, Halla ranks as the dean among his major chipmaker peers. His decision last week to step down should have met with more fanfare than it did.

When he took over National, it was a near-conglomerate, making everything from PCs to a full slate of chips. Much like Intel’s Grove, who eschewed the memory market for microprocessors, and TI’s Junkins, who stuck with memory, Halla opted to bet the farm on analog chips. In retrospect, his decision was fortuitous — and highly profitable.

While other semiconductor makers suffer through steep cycles, Halla’s strategy has paid off with standard company profit margins above 61%, and even during the nadir of the 2008-09 recession, National’s lowest profit margin was 58%.

More important, he has established a veteran management team that will allow for a smooth transition as he steps aside, and his model will likely carry over as a money-maker for years. Like Grove and Junkins, Halla made the tough calls. Here’s hoping history remembers him well.