Mike Ricci

"If you come in too heavy on a startup, you squash it. If you come in too light, it dies as an island on its own."

June 14, 2001

11 Min Read
Mike Ricci

The Light Reading Interview

5416.jpgIn The Spotlight: Mike Ricci

Stop us if you've heard this one before: Intel Corp. (Nasdaq: INTC), the leader in PC microprocessors, wants to get inside the networking business.

Okay, stop giggling.

This time around, Intel wants to get into optical networking components, where it foresees a $50-billion-plus market in the near-term. Intel's networking products division has already gone on an optical buying binge, using its formidable resources to scarf up a half-dozen optical startups. The company plans to follow the Cisco Systems Inc. (Nasdaq: CSCO) modus operandi of conquering by acquisition and integration, hoping a combination of entrepreneurial smarts and fabrication know-how will smooth its way into new high-growth markets.

That's the latest plan, anyway, according to Mike Ricci, a vice president with Intel's communications group, who is also the general manager of the company's optical products group. While he's well aware of Intel's past shortcomings in the communications chip space, the 46-year-old Ricci says the company is truly committed to the optical market, claiming a mandate from CEO Craig Barrett and Chairman Andy Grove.

Ricci, who spent almost 20 years working on communications chips at Intel competitor Advanced Micro Devices (NYSE: AMD), moved to startup Level One Communications, a telecom- and networking-chip concern, in 1997. Following Intel's purchase of Level One in March 1999 (for approximately $2.2 billion in stock), Ricci joined Intel's networking group and is now head of the optical products group following a February reorganization.

Working hand in hand with Intel Capital, the company's investing arm, Ricci says Intel hopes to follow a Cisco-like path of acquiring talent and marrying it with the company's manufacturing and sales experience, to produce the economies of scale that have so far escaped much of the optical components business.

Aware of the huge barriers to success -- including Intel's own history, as well as a laundry list of well-established competitors that includes Agere Systems (NYSE: AGR), Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC), and Vitesse Semiconductor Corp. (Nasdaq: VTSS) -- Ricci is nevertheless optimistic, both for his company's chances and the industry's overall health.

"Despite some people jumping off cliffs, optical is not dead, and there will be a need for products in the near future. And Intel's deadly serious about the communications space. I've seen nothing [internally] that would indicate anything but full commitment."

Seriously.

Read on as Ricci explains:

The Blue Men
Seeing CMOS
Ventures or Vultures
Optical Buffet


Light Reading: Do you ever get people who are amazed that Intel is in the optical components business?

Mike Ricci: All the time. When we conduct surveys, we're known as the blue men, the PC guys. When you put that much effort into building your branding around the center of the PC, you wouldn't expect people to say, "Oh, Intel's a comm guy."

So, you're not going to see blue men running around selling comm chips. But the brand is powerful. When you say it's Intel calling, doors open.

Light Reading: Can you give us some background on Intel's moves in the optical space the past couple years?

Ricci: It goes back a bit, to when Intel acquired Level One, which is the company I was at. At Level One we had a small optical team, working on some small efforts in the PHY space, the Layer-1 space. A group of us from Level One went to Intel [management] and said, "Hey, there's this market called optical, and we think you ought to be investing more heavily."

Almost within a week of giving the Intel management presentation about the opportunities in optical, the Giga deal came on the scene (Intel acquired Giga in March 2000 for approximately $1.25 billion in cash -- see Intel To Acquire Optical Chipmaker). That was really our big splash in optical, mainly because of Giga's leadership products in 10-gig and 40-gig.

So Giga made us a player, and if you're not in the market, not buying products, people don't know about our name. But if you're out there buying parts, you know we are a major supplier in 10-gig.

So we went from not being at all on the map -- let's say a year and a half ago -- to now being a major player in the 10-gig PHY space, with major products going on in the Sonet space -- and then I assume you're familiar with the last three acquisitions, which have really stepped it up (see Intel's 10-Gig Shopping Spree).

Light Reading: Are the acquisitions related at all to the recent reorganization?

Mike Ricci: We did two things: We reorganized, just recently, and formed an optical unit; we also took some things out of other organizations, and put them together, like 10-gig, which had been in networking but is now part of optical. Both Cognet and nSerial [two of the latest acquisitions] are low-power complementary metal oxide semiconductor (CMOS), 10-gig Ethernet solutions.

Probably the most radical move was [acquiring] Light Logic, a deal that just closed officially. The Light Logic deal is a transponder play. They make modules and transponders for 10-gig Sonet.

Light Reading: What's the commitment from Intel corporate to the optical division? Is this something that is seen as a major contributor to the overall bottom line?

Ricci: Yes, it is. Expectations are always about "when," and our [contribution] would have been more major this year, had we not gone through the same stuff everyone else is going through.

The one thing I'll say about Intel management: [Craig] Barrett and the board, are all very committed that we shall grow Intel beyond the microprocessor space and get into markets that are growing at a faster rate... as long as you don't look at this year [laughs]. Despite some people jumping off cliffs, optical is not dead, and there is a need for products in the near future.

Light Reading: You were at AMD for a long time, watching Intel from the outside. How come the company hasn't been successful in its previous attempts to crack the networking market?

Ricci: Intel always had the respect [in networking], but the issue was would they stay focused on that, or go back to the knitting of microprocessors. It's become very clear to me, over the last four years, that Intel's deadly serious about the comm space. I've seen nothing that would indicate anything but full commitment.

To grow as a company, these markets are essential. Intel realizes that you need the communications infrastructure in place to grow the whole PC market. The focus on communications and the Internet is a major shift in the culture of Intel, one that wasn't in place 10 years ago.

Light Reading: Let's talk about the metro systems market... Why is Intel going there first?

Mike Ricci: If you look at our product offerings, we're targeted right on metro. One of the reasons we did the Light Logic deal is because they've got a highly efficient, low-power design, and automated assembly. We think they've got a really good module for hitting the key needs of the metro market, which are lower power and higher density. And those will drive both into long-haul and enterprise. So we think that's a good beachhead.

Light Reading: Are there any customers to talk about in this space?

Ricci: We don't make a habit of talking about customers. I will tell you, we're working with all the tier-one players. We are talking to all the right people; we do actually have customers.

Light Reading: Are there any optical metro products with Intel inside out there yet?

Ricci: If we hadn't had the slowdown, we would have seen things this year.

Light Reading: What's the near-term and long-term future of metro products?

Ricci: We think metro will be a strong combination of 10-gig Ethernet and Sonet. I strongly suspect that programs on 40-gig are being slowed a bit, because revenues are important today, and more customers are focusing on employing 10-gig. If I had to bet, I think 10-gig will continue to be a mainstream player and get pushed out longer, partly because of the pullback.

Light Reading: What's the biggest bottleneck to Ethernet in the metro market?

Ricci: Getting the standards stuff figured out. The Sonet guys still have a better idea of what the real-world issues are than the Ethernet guys.

Light Reading: Intel has had a very active role as an investor in the optical arena the past two years [see Intel's Optical Attack Makes Waves]. How closely is your group tied to that?

Ricci: Very close. We work through Intel Capital for an acquisition. I personally spend a lot of time with [Intel EVP and Intel Capital president] Les Vadasz's team. As part of the recent reorganization, we actually tied the Intel Capital folks to us.

In the past, prior to Intel having an optical group, they [Intel Capital] ran a little more independently and they were looking more at the market, trying to find out how startups might be synergistic with Intel. But it was kind of hard, since we didn't have an optical [products] group.

Now that we have a very clear structure for the optical products group, they're very closely aligned with what we're doing. So we will be driving common strategic plans, for example, and really looking at both equity investments and acquisitions.

Light Reading: So they take marching orders from you?

Ricci: Yes. We're aligned strategically. The goal would be that we have this grand umbrella, what we want to do, optical products group-wise, and that's how we align our investment strategy.

Light Reading: What about acquiring companies that compete with other investment portfolio firms?

Ricci: That will always happen. The world evolves, the world turns... You make investments on one day, they may still be great investments, but they may not line up perfectly with what your needs are. You have to make business decisions, on what complements our needs. So Intel may make an acquisition that competes.

Light Reading: What do you say then, to your portfolio companies?

Ricci: What I just told you.

Light Reading: We've heard some stories from startups that Intel sometimes comes in, looks around at the technology, then pulls out and funds something similar somewhere else. Has any company ever complained to you?

Ricci: I don't have any experience with anything like that... It's news to me.

Light Reading: What's the process, then, for due diligence with potential investments or acquisitions?

Ricci: I don't go do those discussions. My involvement is to help put together a roadmap for them, where we need to fill the following holes in terms of technology. We will work and partner with Intel Capital, but we're not typically involved with going out and doing visits. We'll send some people in, but they [Intel Capital] do a lot of the ground work.

Light Reading: It seems like the acquisition method is similar to Cisco's approach, realizing that innovation comes easier to small teams.

Mike Ricci: I would say it's a Cisco-type approach. If you look at what we're trying to do, you see that Intel has a lot of strengths: a very strong manufacturing house, very strong in overall processing systems, very strong in channel, very strong in silicon capability. If you think about the optical space, that's a perfect marriage.

Overall, the optical space is several years behind. There's still a lot of hand-held stuff going on that's just ripe for volume manufacturing. Obviously, we know volume manufacturing. And as the network becomes more and more optical, volume will enable it to extend. We'd all like optical to the home, but when can it be enabled, from a cost structure? Intel's a great player to help do that.

What we look at in acquisitions, is bringing in key intellectual property and talent. Giga is a great example -- they had great IP, but little manufacturing. Within a very short period of time, we took Giga's boutique capability, linked it up to Intel, and all of a sudden we're shipping volume.

Light Reading: Isn't integrating startups a tricky task?

Ricci: It's definitely tricky -- there's a balance point. If you come in too heavy on a startup, you squash it. If you come in too light, it dies as an island on its own. The key is figuring out how much help does it need, and where's the return on investment. It's not easy. But Intel's been doing acquisitions for a long time, and we're pretty good at it. We have integration teams, a process in place.

Light Reading: Employee relocation is also a tough task -- it's hard to get optical engineers to move.

Ricci: Tell me about it. The last time I counted I've got 15 locations in my organization.

Light Reading: How did you manage to get all this optical work done around a hectic NHL career?

Ricci: It's been a tough schedule.

– Paul Kapustka, Editor at Large, Light Reading
http://www.lightreading.com

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