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A woman walks past an Intel logo at the 2012 Computex in Taipei June 5, 2012.
Credit: Reuters/Yi-ting Chung
By Noel Randewich
SAN FRANCISCO |
Wed Nov 21, 2012 8:30pm EST
SAN FRANCISCO (Reuters) - Wanted: Visionary CEO to help world-class chipmaker expand beyond struggling personal computer market into tablets and smartphones. Experience with cutting-edge manufacturing plants and $10 billion annual capital expenditures a plus.
Intel Corp raised eyebrows on Wall Street and in Silicon Valley this week when it said it will consider an outsider to take over from outgoing Chief Executive Paul Otellini, potentially ending a four-decade tradition of internal succession. Some analysts took that as a sign the top global chipmaker might be considering a transformative hire.
Intel came under fire during Otellini's tenure for missing out on the mobile revolution, insisting that emerging markets would prop up growth while underestimating the scale of the eventual drop-off in personal computer demand, and orchestrating a push on "Ultrabook" laptops that have so far failed to excite consumers.
A future leader not steeped in Intel's insular culture could potentially open the chipmaker's prized factories for the first time to outside customers like Apple Inc or pursue other new strategies to expand into tablets and smartphones, said analyst Nathan Brookwood of Insight 64, a consulting firm.
But any investor hoping Intel will hire an outsider with a dramatic solution to the top chipmaker's PC plight may be out of luck, experts say.
While the idea of an iconic visionary like Steve Jobs stepping in to lift Intel into the mobile market - its Achilles heel - may sound attractive, it could open the chipmaker to new risks should it waver from its traditional focus on hard-core manufacturing.
Gurus with the experience to run a company with $53 billion a year in sales, a $10 billion capital spending budget and cutting-edge chip manufacturing plants are few and far between - and even rarer outside of Intel, which is struggling with falling PC sales and meager progress in mobile computing.
"If you bring someone in who hasn't run chip companies it's going to be very difficult because Intel is somewhat unique," said Patrick Henry, CEO of Entropic Communications, which makes chips for home entertainment. "It would probably surprise me if they didn't hire one of the internal guys."
Silicon Valley peer Hewlett-Packard Co exemplifies the risks of a poorly thought-out external hire, recruiters and analysts say. During his tumultuous 11-month tenure, former software CEO Leo Apotheker engineered the widely panned $11 billion acquisition of Autonomy, which HP accused this week of accounting wrongdoing enroute to swallowing an $8.8 billion charge. [ID:nL4N0902ZH] He also presided over several quarters of lackluster financial results.
"I don't think (Intel) needs a 180-degree transformation. You don't want somebody like a Leo Apotheker coming on and being your complete undoing," said JMP analyst Alex Gauna. "Because of how badly things have gone for HP, the most probable scenario for (Intel) at the end of all this in May is that it looks very much the same."
But Mel Connet, a tech industry executive recruiter at Heritage Search Partners in Menlo Park, California, said Intel's culture needs a shakeup that justifies looking for an outside candidate, while being mindful of the HP example.
"My only advice would be not to use the same search firm that HP used," said Connet, whose firm has not been contracted by Intel for its search.
INSIDE CONTENDERS
Chief Operating Officer Brian Krzanich, who is Intel's manufacturing guru, is frequently mentioned by Intel employees as a strong contender to become CEO, partly because manufacturing is at the heart of Intel and previous chief executives have been promoted from the COO position.
Chief Financial Officer Stacy Smith is well known by financial analysts and many favor him, believing he is the best bet for keeping Intel stable.
The company's other executive vice presidents are Renee James, who is in charge of Intel software; Intel Capital head Arvind Sodhani; and Dadi Perlmutter, head of Intel's push into mobile. They are well respected but are mentioned less often as potential picks.
Sanford Bernstein analyst Stacy Rasgon said a CEO hired from the ranks would have instant credibility among the company's tight-knit workforce, which includes over 4,000 PhDs.
"There's no silver bullet. The issue here is not any sort of miss-execution on their part," said Rasgon. "Their market is changing beneath their feet."
Otellini's decision to retire, announced Monday, caught the board unprepared to replace him, Intel spokesman Chuck Mulloy has said. All of Intel's previous CEO successions were planned long in advance, leaving no room for instability.
While Intel said it would include external candidates in its search for a new CEO, it also announced the promotion of Krzanich, Smith and James to executive vice presidents, suggesting that they remain serious potential candidates.
Mulloy has said Intel veterans will have a natural advantage in winning the CEO position because they are familiar with the company's manufacturing-intensive business model and insular, engineering culture.
TATTERED ALLIANCE
The Santa Clara, California-based company has long been king of PC chips, particularly through its historic "Wintel" alliance with Microsoft Corp, which led to breathtakingly high profit margins and an 80 percent market share.
Its cutting-edge fabrication plants are the envy of rivals like Samsung Electronics Co Ltd and Taiwan Semiconductor Manufacturing Co Ltd (TSMC), and helped it cement its leadership over decades.
But more recently, Intel has struggled to adapt its powerful PC processors for battery-powered smartphones and tablets, and Wall Street increasingly worries the chipmaker may be left behind in the fast-growing mobile market.
It has pinned its mobile hopes on its superior manufacturing technology, but that strategy has yet to pay off. To date Intel's market share for smartphones is less than 1 percent, trailing Qualcomm Inc and Samsung.
Since all but a handful of U.S. chipmakers have shuttered their fabrication plants in the past two decades and outsourced production overseas, few executives have experience planning and running advanced plants that cost nearly $10 billion each to build.
"The perfect choice, which I don't think exists right now, is somebody who can manage massive fabs - and also mobility. They don't exist outside of Samsung, and that's just not going to happen. There's a culture clash," said Patrick Moorhead, of Moor Insights & Strategy.
Insight 64's Brookwood believes a "Lou Gerstner-type" of executive with a fresh approach could shake up Intel but said such a candidate need not come from outside.
Gerstner left RJR Nabisco to run International Business Machines Corp in 1993 and is widely seen as saving the struggling technology giant by focusing on IT services instead of products, in a radical shift.
Intel believes its manufacturing strength is its key to succeeding in mobile computing, even if it takes a while for that strategy to pay off. Gauna said Intel's future CEO should stick to that strategy, although it would be good for that person to have better ties to the mobile world as well as software companies seen as vital for tablets and smartphones.
For example, Intel-based smartphones running the Android platform debuted just this year but could have been launched sooner had Otellini been more aggressive, Gauna said.
"How they weave in the software strategy and the partnerships within the software and (manufacturing customer) marketplace - that's where it gets really interesting," Gauna said. "If I could paint a picture of what it needs to look like I'd put my hat in the ring myself."
(Reporting by Noel Randewich; Editing by Richard Chang)
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