Welcome by Peter K. Bhatia

Good afternoon everyone and welcome to the 76^th convention of the American Society of Newspaper Editors. I’m Peter Bhatia, executive editor of The Oregonian in Portland and this year’s chair of the Convention Program Committee. I can’t tell you how glad I am to see this day arrive.

On behalf of ASNE president, Edward Seaton, the officers and directors of ASNE, and the staff of ASNE led by retiring executive director Lee Stinnett, it is my pleasure to welcome you to America’s greatest city, San Francisco.

Your convention program committee has planned what we hope you will find a lively, informative, interesting and useful next three days that will feature numerous segments of substance and contemporary interests, starting this afternoon with Andy Grove and a discussion with leading experts on the impact technology will have on our business within the coming years.

Here are some of the highlights of what’s ahead this week.

Today, of course, is our technology day. Tomorrow we’ll hear from two of the most interesting politicians of the last 20 years in California. That would be the two mayors Brown, Willie Brown at breakfast and Jerry Brown at lunch. They aren’t related, by the way. In between, there will be three segments devoted to the impeachment of the president, highlighted by a discussion featuring Nancy Kassebaum, Leon Panetta and David Broder on where the presidency goes from here. The convention also features some further reports and details on the important work that’s ongoing under the auspices of ASNE. Tomorrow afternoon, for example, you will learn about how any newspaper can make international news an issue of local interest. That work comes out of Edward Seaton’s leadership and the work of the International Committee led by Doug Clifton of The Miami Herald. Their work product, “Bringing the World Home,” was in the red bag you received at registration. Tomorrow afternoon also includes a report from our Readership Issues Committee on the “Local News Handbook,” the really thick book you received at registration, and on new initiatives coming from ASNE on the ever-important topic of readership. Thursday afternoon includes this year’s report from the multiyear ASNE Journalism Credibility Project. We’ll hear from researcher Chris Urban in detail on the national research project on credibility that she did for ASNE. You will learn details of the initiatives at eight test-site papers around the country that are working on projects that will be applicable to all of us as we tackle those nasty and intractable credibility issues.

On other topics, there has been much conversation and debate this year on diversity and ASNE’s role in it. We have two exciting programs planned that speak to that issue — one featuring Los Angeles Times publisher Mark Willes, who returns to ASNE this year, and Jay Harris, the publisher of the San Jose (Calif.) Mercury News and an ASNE member. They are going to discuss content initiatives under way at their newspapers in response to the changing demographics in their markets. That will be the Thursday morning session just before we go to hear the president. That afternoon we will hear from the distinguished actor, Edward James Olmos, whose friends call him Eddie. I’ve never quite gotten used to the fact that the guy who played Lt. Castillo on “Miami Vice” is called Eddie by his friends. He will share his thoughts on life in America today.

We have many other distinguished speakers and journalists who will be joining us. Gerry Adams, the president of Sinn Fein, who was flying from Belfast specifically to speak with us had to cancel late last week due to the pressing business of the peace talks involving Northern Ireland. Steven Brill of Brill’s Content is flying in from New York tomorrow night just after he closes the next issue of his magazine to be here Thursday morning. And let us not forget Sharon Stone, who will speak at the Friday luncheon.

We’ve also endeavored to provide you a significant slice of San Francisco during the convention. The Lollipop Guild, which is a subset of the famous and distinguished San Francisco Gay Men’s Chorus, will perform at breakfast tomorrow, and an octet (I messed this up the other day, I called it an eightsome, which kind of tells you my mind-set) from the San Francisco Symphony is scheduled to perform at lunch on Thursday. That is in doubt at the moment because of the timing of the president’s visit and their schedule, but we’re still working on that. Unfortunately, the performance of Beach Blanket Babylon, the long running San Francisco review, had to be canceled. That’s because of a variety of considerations, not the least of which was ultimately there wasn’t a room in the hotel that could accommodate their stage and also some security considerations involving the president.

You won’t want to miss tomorrow afternoon’s performance by Judson Green. Judson is a Disney executive. He’s vice president for theme parks, which is, as you can imagine, probably roughly equivalent to being an executive editor. He combines jazz music, which is his passion (he’s an accountant by training), with lessons in leadership. He’ll be putting on a musical leadership seminar for us in this room tomorrow afternoon.

Before we begin the program I want to pay tribute to the hard-working members of the Convention Program Committee. Their ideas and labors have been essential to the success of this convention, at least what I hope will be the success of this convention. I want to particularly say thank you to David Zeeck from Tacoma, who will guide us through the technology segment this afternoon; Narda Zacchino of the Los Angeles Times, who, among many good works, arranged for Edward James Olmos, Bud Hodgkinson, Chitra Divakaruni and Mark Willes to join us; and to my friend Deborah Howell of Newhouse News Service, who is the force behind the impeachment segments, if not the impeachment itself. Also, I want to say thank you to Karen Baker and Brian Stallcop, who are overseeing Friday morning workshops. Friday morning is entirely devoted to issues of the craft of journalism. I want to also say a very emphatic thanks to our host newspapers and their editors. Phil Bronstein of the Examiner is an old friend. I used to be his editor way back when. Phil has personally recruited two of the lunch speakers and been very active in helping us get speakers and shape this convention. Sharon Rosenhause, who is managing editor for news at the Examiner, is introducing Sharon Stone on Friday and is also the force behind what is going to be a very successful job fair Friday afternoon. Pam Scott, managing editor for operations of the Examiner, is the press room chair of the convention. All of them have been wonderful resources, as have members of their staff. I also want to say thank you to Matt Wilson, executive editor of the Chronicle, who probably set a record through the last many months in the number of e-mails received and returned from me. Matt has been a wonderful resource in terms of scoping out speakers, checking out people in the Bay area and indeed has been part of David Zeeck’s team in recruiting this afternoon’s technology segment. And of the local editors I would be remiss if I didn’t mention my good friend Jerry Ceppos, who has been a wonderful resource of ideas and endured many, many jokes at his expense from me by e-mail and otherwise, and has been a wonderful resource in putting together today’s technology segment. I also want to say thanks to Edward Seaton and Lee Stinnett for their unending support and good ideas and guidance throughout the year as we’ve worked on the program. Personal thank-yous, as well, to my pals, Gregory Favre, Tim McGuire, Rick Rodriguez and Sandy Rowe, for their unstinting willingness to bounce ideas back and forth with me and listen to my various obsessions as we approached this day. Finally, and I know this is beginning to sound like an Academy Awards speech, I want to say thank you to all of our convention sponsors: the Chronicle and the Examiner, or the Examiner and the Chronicle (those of you who’ve worked in competitive markets know why I just did that); Knight Ridder, The Freedom Forum; the Los Angeles Times, A.H. Belo and the Press-Enterprise Riverside, Calif.; The McClatchy Co.; the San Diego Union Tribune and Copley Newspapers; and the St. Louis Post Dispatch and Pulitzer Inc.

With that, it is my pleasure to welcome you again, thank you for your participation in this convention, and to introduce David Zeeck, executive editor of The News Tribune in Tacoma, Wash., who will moderate this afternoon’s program. David.

David Zeeck, The News Tribune, Tacoma Wash., moderator: Thank you Peter. When we began planning this conference we wanted to have a West Coast reflection, and Silicon Valley was one of those places we thought of as unique to the West Coast. Farther up the coast in Oregon, we have the Silicon Forest, and then in the Puget Sound region, of course, we have Microsoft and a thousand spinoffs in the last 10 years. So, technology is a big part of what makes the West Coast special or different. But I was reminded that technology exists everywhere by people from Austin and Boston, who say that the flights that go back and forth between Silicon Valley and those two cities are called the nerd birds.

In this segment we’ll be talking about industry and hardware and machines. In the next, we’ll talk about the Internet. But there are two things that came to mind yesterday in a tour of Silicon Valley that I want to share with you. One was Tony Ridder talking about when he left to go to Miami 13 years ago, Cisco Systems had six employees and no revenues. Last year, I think Cisco Systems had revenues of $8 billion. It has 17,000 employees and has applied to the county for a permit to build a second campus to house 20,000 people. That’s the pace of change in Silicon Valley. And lest you think that will somehow stop, IBM engineers were telling us yesterday that they’ve already invented names for things that are 12 times bigger than anything they have now and 12 times smaller, because they’re thinking in both directions. If you took bits of information called bytes, and had 10 to the 24^th power of bytes, that would be a yada byte. I share that with you to let you know that the language is advancing as fast as the technology here.

I give you Hiawatha Bray. Hiawatha grew up in Chicago, worked for the postal system and then went unpostal, apparently, and made it into journalism. He has been a reporter at the Lexington (Ky.) Herald-Leader, the Detroit Free Press and now at The Boston Globe. He’s been named among the 10 most influential technology journalists in America.

Jerry Ceppos, who is the editor of the paper of Silicon Valley, will introduce Andy Grove.

Jerome M. Ceppos, San Jose (Calif.) Mercury News: Thank you, Dave, very much. Andy Grove’s assistant called my office last Friday very concerned that we would list Andy in the program as the founder of Intel rather than as a founder. What interested me more was that she said, “Listen, just call him author and chairman of Intel, period.” And I thought her choices were worth noting, in part because of the prominence of the word author, which is entirely deserved, but also because she left out so many other descriptors that could be applied to Andy Grove.

For example, Dr. Andrew Grove could be described as a refugee. As a young man he fled the Communists in Hungary to come to New York. This after earlier hiding with his mother from the Nazis in occupied Hungary during the war. He also certainly could be described as a scholar. He graduated first in his chemical engineering class at the City College of New York, having come there knowing only basic English. A few years later he earned — in record time — a doctorate in chemical engineering from Berkeley.

Another descriptor, an obvious one, is businessman. Andy Grove was one of the first employees of Intel, which is all of 31 years old today. He gave up his job as Intel CEO last year but remains its chairman. I was working on this introduction late last night, and I found it almost impossible to describe the extent of Intel’s influence in both business and technology. By any standard, Intel makes money at an astonishing pace. A series in the Mercury News two months ago noted that no other computer company can touch Intel’s profits of $13 billion in the last two years. About 60 seconds ago I leaned over to Andy and said, “Could that possibly be right?” and he said that he thought the figure was. In fact, in 1997 Intel was the sixth most profitable company in the world. But Intel is actually much more than just the leading maker of microprocessors for personal computers. Our shorthand at the Mercury News is to say that microprocessors are the brains of the personal computer, and Intel owns about 79 percent of that market. But more than that, Intel has a nearly unbreakable hold on almost every aspect of PC performance from memory to graphics to sound.

Yet another word to describe Andy Grove might be marketer. Under his leadership Intel turned an almost unknown part of the personal computer, albeit the most important part, into a household name with its Intel Inside campaign. I tried to think of a parallel last night, and all I came up with was that Aamco Transmissions would be a more prestigious name than Mercedes Benz if somebody had applied the analogy to automobiles.

Andy, obviously, is a management guru. In 1984, Fortune named him one of America’s toughest managers. I cannot imagine who the competitors are. I’m glad I don’t know them. His book, “High Output Management,” sold 100,000 copies. Later he wrote “One-on-One With Andy Grove” and also “Only the Paranoid Survive.” So far, and I’ll wrap this up in a second, I’ve used these words to describe Andy: refugee, scholar, businessman, marketer, management guru.

Finally, since I’m an editor, instead of “author,” which your office suggested, I’d like to use the word “journalist.” I was going to take credit for giving him his start in journalism, because Andy wrote a management column for the Mercury News for years, but then I reread a clip from the Mercury News and found that as a boy Andy Grove dreamed of becoming a journalist. However, a newspaper in Hungary stopped publishing his stories after a relative was arrested. He later wrote that he determined “not to seek a profession in which a totally subjective evaluation, easily colored by political consideration, could decide the merits of my work.” I know how you feel. “I ran from writing to science,” he wrote. But he ran back to journalism. In addition to writing about management, he has written about his health. Less than five years ago Andy Grove discovered he had prostate cancer. He attacked the problem with the logic of an engineer and the research skills of a Ph.D. He ended up writing a remarkable cover story in Fortune that discussed his dilemma. Several doctors have told me that it was the best piece they have ever read on the subject, including those in medical journals, and more important, the piece told men that they are responsible for their own health care in clear, sharp language. His fascination with the subject has continued. He devotes time and money to trying to solve the riddles of prostate cancer. I also can tell you, based on my own experience, that Andy Grove has endless time for anyone who is diagnosed with the disease.

I have used a lot of words to describe Andy. Let me sum it up with Time magazine’s cover words when it named him “Man of the Year” in 1997, a remarkable achievement, because I suspect that virtually none of you can name the head of any other semiconductor company, and Andy was declared “Man of the Year.” Time said, “Intel’s Andrew Grove, his microchips have changed the world and its economy.”

Andy, thank you for being with us and for joining Hiawatha Bray and me and the rest of the group.

Let me start off. A word that’s being used a lot this week around here is “reinvention.” All of us wonder if the role of newspapers is changing. Before we get into your views on technology colliding with journalism, I’d like to ask you to describe how Intel reinvented itself several times in its brief history, and maybe more important, how you knew that it needed to do that when times seemed to be good.

Andrew S. Grove: The only time that’s pertinent to what we’re talking about here — what I think newspapers and media companies will have to deal with — is what happened to us in the mid-’80s. Intel was founded as a memory company. We basically invented the field, and for some period of time we were the predominant player in the field. Fifteen years later we found ourselves in a core business in real trouble, losing market share, losing money, losing definitional influence. And in the mid-’80s, the period of time you’re alluding to, we pulled the plug on the business that we stood for and devoted all of our energies to microprocessors and transitioned the company from a memory chip company that also did microprocessors to a microprocessor company that for all intents and purposes didn’t do anything else. That’s the background. It was a horrendous experience. A horrendous experience financially, we lost a lot of money. We had to cut back about a third of the company, and, equally difficult, we had to change the mind-set of all of our employees, particularly our management. That second one is more difficult, because you can lay people off and you’re done. You can close down a factory and you’re done. But minds have a way of creeping back to the form and status that they were genetically shaped to be. You can change somebody’s mind-set, but when they look away and come back, the old mind-set is back.

You asked, “How did we know?” We should have known a lot earlier, but nothing sharpens the awareness of a situation like the sight of the gallows. The sight of the gallows was pretty bad. We had started the business. By definition we had a 100 percent share of the memory market. By the time we realized that we had lost, we were down to less than 3 or 4 percent of the memory market. We lost more money in the last year of our existence than the cumulative amount of money that we had made in the previous 15 years. It wasn’t very subtle. What bugs me as I look back is why it took such a horrendous situation for us to deal with something that an objective observer, which we were not, would have seen coming five or three years earlier. And the answer to that is we were not objective observers. We had the genetic mind-set that didn’t want to see those things until they were so incontrovertibly true that not facing them meant we were going to go out of business.

I don’t know quite what relevance you get out of it. If, in fact, you’re facing a similar situation, you’ll know when it is almost too late. And I don’t know how to set the timing of the process forward, except, in retrospect, we should have enlisted and listened to more objective observers than ourselves. I’ll tell you one story and let you ask the next question.

I visited with a general manager of a major computer company many years after this incident and was talking about us building some parts of the computer for them. This guy said, “Andy, you don’t understand. We like bending sheet metal. That’s what we grew up learning how to do. We know how to bend sheet metal better than anybody. We love it. You’re telling us to give up on bending sheet metal?” The company was DEC.

Ceppos: Why don’t you mention what happened to DEC?

Grove: DEC hit tremendous problems and laid off half, 60 percent?

Hiawatha Bray, The Boston Globe: A very large percentage by the time they were consumed by Compaq. I forget the numbers, but a huge percentage of their employee base was gone. That’s quite right.

Grove: And they no longer exist.

Bray: The name is still hovering around out there but is rapidly fading into nonexistence. In one of your books, you talk about that very incident as being what you call a strategic inflection point. And I wanted to talk about another one of those points because I think it has particular relevance to journalists, and that, of course, is the famous Pentium bug affair of, I believe, 1994. I understand it was the moment you suddenly realized that you really had to pay attention to these people out here who wouldn’t know a silicon wafer from a vanilla wafer, but what we write and what we say really matters. Is that what happened on that particular incident?

Grove: That’s a little self-serving description from the standpoint of journalism. You in the journalistic world were an important part, and a not particularly helpful part in the process.

Ceppos: Will you describe the problem?

Grove: In 1994, we were introducing a brand new microprocessor, and there was a very obscure flaw in it that caused some computations to be inaccurate under very unusual and rare conditions. Fair?

Bray: That’s fair.

Grove: We were in a deep denial about it, and we were trying to minimize it. Once the news of this surfaced, we ran into consumer rebellion and the offshoot of the consumer rebellion was that we had to offer a free replacement for anybody who had a part with that original flaw in it, of which about 25 percent of our customers availed themselves.

Now, Hiawatha is right that it was a moment of awakening. I’m only correcting that the role of the press was an accelerator of this consumer reaction. What really forced us is a recognition that through that wonderful set of actions that built a momentous brand for the Aamco Transmission inside the Mercedes, we had entered into a pact with the consumer. We liked the left parenthesis on that pact, but we didn’t particularly like the right parenthesis. We liked to be honored and respected for being the heart of personal computers. We didn’t like the responsibility that came with that. We had conversations inside the company of which I was a major party: “I don’t understand, how can we deal with people whom we didn’t sell anything to? We never took their money. How did we come into this?” The realization was that a brand is a two-edged sword. That was the “a-ha” that’s obvious in telling, just as the memory story is obvious in retrospect, but it was not that obvious for some number of weeks. But I don’t think that was a strategic inflection point for Intel. It was an acceleration of an awareness of what it means to have a consumer brand, a very painful acceleration. The force we had to deal with was the millions of people who had bought our product and who were clearly aghast at our conduct.

Bray: I wanted also to ask you, partly because of the answer you just gave, I get the sense that you do think that sometimes we do get a little too self-serving in this profession. Once again, you have to routinely deal with questions coming from people like me who don’t know anything about your business, yet have to write about it on a daily basis. How are we doing? Or should I rephrase it and ask how bad is it?

Grove: There are two elements to your question if I can parse them that way. One is how is it dealing with people like yourself and your colleagues and the like on a transaction-by-transaction, issue-by-issue basis. The answer to that is not bad, as a source or subject of inquiry. It used to be bad in the ’80s, but since then ... When did you get in the field?

Bray: Actually, I’ve been in the field since the late ’80s, but I’ve been covering this specifically since about the early ’90s.

Grove: The point is a number of people like yourself came into this field and have stayed in it for some period of time, so the knowledge factor is not bad anymore. We routinely deal with people who know the field and know the subjects. Sometimes, embarrassingly, as you get higher and higher in management, you know less and less about your business, and sometimes you deal with journalists who — not even technical journalists, business journalists — know stuff about your business you don’t know. Back in the early ’80s, every time the Mercury had somebody on the beat, which happened fairly frequently …

Ceppos: I knew that I shouldn’t be up here.

Grove: … Ten years ago we had to show them a wafer and explain this is a wafer and this is a packet and stuff like that. Having said that, an offshoot of this question is, “How good is business coverage? How good is coverage of Intel? How good is coverage of the high-tech industry?” The picture there is not nearly as good. Somehow, even though the reporters we deal with are fairly knowledgeable and have experience, perspective is lacking pretty badly. I really notice it when I read about things that are high-tech issues, but not ours —I read coverage of us with a magnifying glass — and …

Bray: I can verify that.

Grove: You had a very profound compliment recently. Don’t forget that.

Bray: I did. Andy complimented our coverage. Talk about being self-serving. Please continue.

Grove: Well, I brought it up. I expect a return. But when I read about something having to do with the software industry, the Internet industry, the telecommunications industry, the media industry, it’s lacking perspective, it’s lacking meat, it’s lacking accountability.

Bray: You mean the accountability of the journalist who wrote it?

Grove: No, accountability to the principals who are selling you a story. When politicians — whether it’s Willie Brown or Jerry Brown or President Clinton — go on the stump, political journalists will drag up something that was said 2 1/2 years ago, addressing some tobacco workers in Kentucky: “Isn’t it true Mr. President, or Mr. Whoever, that you said such and such and such and such?” People hold you to what you have said. There is absolutely no institutional memory in business reporting. It’s almost as if today’s news is starting from today. People like us are encouraged to hype shamelessly our story of the day because we know we will never be asked about it again. I like that liberty at Intel. It gives our people license to be creative. But I don’t like it as a customer when I try to read something a little bit more in depth and want a bit more perspective about some other industry. At some point, somebody ought to hold us all accountable for promises, for visions that didn’t materialize, to try to put these things in perspective. My knowledge of journalism comes from “The Front Page.” In my perspective that is what editors are supposed to be doing, and I don’t think you are doing it.

Ceppos: Interesting. Let’s get to the heart of things. I suspect we’ll have questions about this. If you were a newspaper editor, how would you compete with the proliferating sources of information, particularly on the Internet, which is probably on everyone’s mind, but with information coming at you everywhere, and tell us where you get your information, too.

Grove: Let me start backwards. Definitely, before my day is over I go on a couple of Web sites and read news wires. …

Bray: Which ones, by the way? Which sites?

Grove: Should I say that?

Bray: Sure. The Boston Globe, of course.

Grove: It’s almost accidental, because they’re sufficiently similar and use the same sources, but I’m an admirer, a subscriber, we need a new word for that. I’m not a customer, not a subscriber, a viewer, and I get predominately Reuters, CBS MarketWatch feeds, and sometimes I click on AP and ZDNet, predominately to look at companies and industry coverage. Then for industry gossip I go to CNET. Again, it’s a choice of one of several that I could do. I spend, depending on the day, anywhere from 20 minutes to an hour doing that. Then I go home and I read two newspapers. One is the Mercury News, the other is The Wall Street Journal, and my reading is completely patterned. You could almost shoot holes in the newspaper that I am not interested in because that was yesterday. I’m not looking in those newspapers for data. I’m looking for something beyond that, which is my complaint, because sometimes I get it, but mostly I don’t. I’m looking for news interpretation, some additional values, some insight, something that the wire service person who had to post it in minutes to get it onto Yahoo, etc., couldn’t possibly do.

Bray: You’re not talking about opinion are you? You’re talking more ...

Grove: Interpretation is not opinion. There is a difference. Opinion belongs someplace else. I would like somebody to explain and put in context what I read, put in context in terms of history, which is completely consistent with what I just talked about. What happened before that led us here? How does this relate to all those things? How does this relate horizontally to what else happens in the industry? Again, I spend a fair amount of time doing that, probably another hour, maybe more, but what I‘m concentrating on is more the meat, plus the stuff that I didn’t look at — the local news and things like that — on my wire service. I do one more thing, which is kind of funny. Somebody, almost as a lark, gave me a subscription to Slate’s Today’s Papers, and I look at the evaluation of the front pages. ...

Ceppos: How different papers play different stories...

Grove: That’s right. I don’t get information out of that, but it’s an interesting exercise. That’s what I do.

Now, back to the question, “What should an editor do?” The problem starts from the publisher’s standpoint, the business manager’s standpoint, because two things are happening. Very simply, again I know very little about the business of journalism, but you have completely oversimplified. To use Internet terminology, you get my eyeballs with the news coverage and sell advertising, either retail advertising or classifieds. You’re under attack at both ends. You’re under attack in terms of somebody’s already stolen a third or half of my eyeball time away from you, in my instance, and it multiplies. Increasingly, if I were to look for something in the classified section, I’d probably go to one of the auction sites. And my tolerance for commercial messages is being stretched by those annoying Internet ads on top. You have a problem two ways. The way you get people in the tent is being attacked, and what you have inside the tent is being attacked.

You kind of set me up with your first question. You’re where Intel was three years before the roof fell in on us. You’re heading toward a strategic inflection point, and three years from now, maybe, it’s going to be obvious. Things like newsprint giving you a little bit of a lift, a little bit of a hand, are going to run their course. You’re going to be in a profit squeeze, and it’s going to be a very, very difficult time, more difficult to adjust later. All of this sets up what to do. You have to ask what your microprocessor is in the Intel analogy. What is it that you can do for me as a reader that the Web pages or online coverage can’t do? I indicated what my preference is. I’m looking for depth. I’m looking for interpretation, and please don’t give me length instead of depth. A lot of magazine coverage does that. They think they’re deep when they give you a six-page article, and they’re just long.

From a publisher’s standpoint, there’s going to be huge push and pull. This requires more money at a time when margins are going to be under attack. Interpretation requires time and requires research and requires feet on the street, people on the phones calling, studying, going to the library, probably at a time when you’re financially being pulled in the other direction. And my history of the technology industry is you cannot save yourself out of a strategic inflection point. You can save yourself deeper into the morass that you’re heading to, but you can only invest your way out of it, and I really wonder how many people who are in charge of the business processes of journalism understand that.

Ceppos: We need to invite you to the publisher’s convention, I can tell.

Grove: You can write a clip and put it on people’s desks.

Ceppos: We’re known for that subtlety. I want to get to questions, but remind us of how much Intel spends on research and development every year, roughly.

Grove: This year it’s $3 billion. We never spend the same amount every year. The one thing that’s been monotonously increasing throughout our history is our R&D spending. Everything else we’ve had reversals on.

Ceppos: There’s a lesson there for our industry. Thank you. Why don’t we go to questions now.

Questions from the floor

Timothy J. Gallagher, Ventura County Star, Calif.: Mr. Grove, Intel recently built a high school in New Mexico. Can you talk to us a bit about the strategy of what you’re doing there, or what the reasons are behind that?

Grove: I don’t know the particulars of that, but New Mexico has been very good to us, and our community has been very good to us. The outskirts of Albuquerque is our largest manufacturing site, and we’ve had a variety of programs associated with building up the educational infrastructure of New Mexico. We started with junior colleges where we needed skilled individuals who would improve the pool of employees. In that process we’ve agreed to fund the building of a high school in the neighborhood where we operate. A residential area grew around us, and there was a pretty strong need for that. Education, in general, and I’m talking interpretation, putting things into perspective, and particularly science education, is a big source for us. We spend approximately $100 million a year on education, with an emphasis on science education, international science and technologies, science search, talent search. …

Gallagher: A hundred million worldwide?

Grove: A hundred million worldwide, but very heavily weighted to the United States.

Jennie Buckner, Charlotte (N.C.) Observer: Mr. Grove, would you talk to us as a leader about leadership of change. Many of us are trying to bring about changes in our newsrooms. What advice do you have for us?

Grove: That’s a pretty big question. It’s a subject that a lot of words can be wrapped around, so I’ll make one comment on it. You’re responsible for a particular organization, and you go through this agony that we’re talking about as some monumental change is coming that obsoletes all your leaders’ or employees’ or organization’s skills. You can’t wait until the new era, the new — I’m trying to say this without using the word paradigm — shape of things is clear. You have to commit yourself to the new way of things long before you know what they’re going to be, certainly long before the people working for you are ready for it. Now, you have a bunch of people whom you’re supposed to lead to the other side of a valley with a hazy mountain on the other side. The only way you can do that is exaggerate the confidence and the commitment that you have and spread some of that courage that you’re somewhat feigning and infect those people and induce them to follow you. As you begin to move toward a new direction, there’s going to be time for you to clarify and course correct as you understand the new picture better. But you have to make that commitment long before the answers are in.

David Yarnold, San Jose (Calif.) Mercury News. Much is being written about the commoditization of PCs and the proliferation of sub-$1,000 and now sub-$500 computers. Would you talk a little bit about Intel’s strategy as you move into the age of information appliances? I have one question I’ve always wanted to know an answer for about information appliances — why do I want to talk to my refrigerator?

Grove: I’m of the general belief that you don’t want to talk to your refrigerator. And this is another big subject that we could spend quite a bit of time on, but I think the information appliance is the low-cost PC, for two reasons. No. 1, it is low in cost, and it’s going to get lower because now the total cost of ownership is so dominated by service and telecommunications costs — more than half, sometimes two-thirds of the cost — that subsidization kicks in. People will want to sell you service. The subsidy cost that the customer sees is going to be lower than the actual cost. But aside from that, there’s going to be a lot of pressure to reduce the cost of these devices, and the way you do that is you throw out all the stuff that shouldn’t be in there in the first place. It’s only there because it’s always been there, and there’s never been an imperative until now to get rid of it. Now that we have a cost imperative to get it out, we’ll get it out. The low-cost PCs will be easier to use and more stable. They will take on the characteristics that were lacking in the appliances: cost, ease of use and stability. That’s the direction we’re heading.

Yarnold: I can’t help thinking that you sound a little like the guy you were describing at DEC, who said they like to bend metal, they know how to bend metal, they’re going to keep bending metal.

Grove: Not at all. I was just going to say that we love selling high-priced, high- performance microprocessors. Unfortunately, high-priced, high-performance microprocessors don’t fit into these low-cost PCs, so we have to learn to develop and enjoy selling low-cost, high-performance microprocessors that can go into $300 personal computers. I don’t like to do that.

Yarnold: That’s exactly the question. How do you remain the world’s sixth most profitable company and still do that?

Grove: Are we talking about my business or your business? Actually, it has an analogy to be drawn on. Two things I hope are going to happen here. One is that as these appliances become categories of appliances. You’re going to have three or five of them in your house, much larger numbers. We make some of it up in volume. The other aspect is that as these appliances proliferate, there is an awful lot of data flowing from these devices to other devices, to computers in the background. There is a big black cloud that has real powerful computers — much more powerful than the computers you could have on desktops — servers, communication devices, routers and the like, and they all require high-performance silicon. Those do require, no questions about it, high-performance silicon. While we may not like building low- priced, low-cost microprocessors for your desktop or notebook appliance, we will love building these high-performance microprocessors, four at a time, eight at a time. The combination of all the stuff that will process the information that these appliances generate, plus the higher volume of the appliances, hopefully, is going to allow you to make a similar introduction for me in two years time.

Ceppos: We will take one last brief question.

Owen Youngman, Chicago Tribune: Maybe I’m asking you to look outside your industry a little, but to help us to analyze where the change is going to be coming from and the greatest amount going forward, would you have us look at software, at hardware, at the network, or maybe at something else like mind-sets?

Grove: There are a bunch of pillars or stove pipes standing under software and network and stuff like that are supporting something much bigger than even the sum of all those industries, which is a wholesale re-engineering of commercial processes in the world. Commercial processes — advertising is one, news gathering and news proliferation is another, buying, selling, supply line management, service delivery — are all being re-engineered. They are being re-engineered from being done in a batch mode — in kind of a mixed medium, paper, computers, telephone communications, faxes — to being moved into a continuous, connected, data-processing- based medium. This is a huge, huge change, equivalent to the introduction of electric motors into control systems in the earlier part of the century. It will probably take a decade, two decades to pervade the whole world. It’s pretty advanced in the United States, but it’s going to absolutely affect every industry and every service organization. It’s going to affect health care. It’s going to affect journalists, newspapers, magazines. It’s going to affect us. It’s going to affect all the suppliers in those stovepipes who have to be tailoring their offerings to this big re-engineering campaign that is ahead of us. It’s kind of an early swallow that indicates a big flock is coming, but that’s how business is going to be done by everyone in different ways. That’s the big picture.

Zeeck: I was going to ask you to please join me in thanking Andy Grove for appearing today, but I would say please also join me in thanking him for speaking honestly to us about subjects that are close to our hearts such as reinvestment in the news product. Thank you for everything.