Intel corporation ceo Otellini

This morning Intel Corporation announced that CEO Paul Otellini would step down in May 2013, exactly 8 years since assuming that position in 2005.  While Intel Corporation (NASDAQ:INTC)’s manufacturing capability is currently second to none, Samsung is catching up. Increasingly, new designs favor less expensive process technology, not high performance transistors used in PC CPUs.

In the mobile era, customers such as Google Inc (NASDAQ:GOOG), Facebook Inc (NASDAQ:FB) and Apple Inc. (NASDAQ:AAPL) are designing their own mobile processors and server processors. As the PC market has stagnated, Intel has tried to pivot to mobile and increasingly to foundry. However, Intel Corporation (NASDAQ:INTC) has had very limited success in mobile and Intel’s prices for foundry wafers are 3x that of TSMC’s. The new CEO will also have numerous internal conflicts to resolve while moving the company forward.

While a CEO transition midst major changes (Windows 8, smartphone/tablet product roll-outs, increasing competition with ARM) can be disruptive,  BAML analysts note that 7-8 year tenure for most of Intel’s prior CEOs including Bob Noyce – 7 years, Gordon Moore – 8 years, Craig Barrett – 7 years with only Andy Grove serving for 11 years. Second, they assume the board led by Andy Bryant, a 31 year veteran of Intel Corporation (NASDAQ:INTC) and ex-CFO (1994-2007) is likely to ensure the new CEO continues to leverage Intel Corporation (NASDAQ:INTC)’s core capabilities in process, manufacturing and design of leading edge silicon chips for core PCs, servers, and data center markets while charting a path towards new growth areas in mobile devices and embedded markets.

Doug Freedman, an analyst at RBC believes that Otellini’s retirement is yet another challenge Intel Corporation has to fight through in the near-term. However, his eventual departure is more likely a sign that Intel Corporation’s focus could increasingly shift outside of the traditional PC market.

While Otellini has done a commendable job as CEO for the past 7 years, growing revenues at a 5% CAGR to their expected $53.5bil in 2012, the company is feeling the pressure of 1) headwinds in its core PC market and 2) being unable to capture a sizable portion of the mobile SoC market (dominated by ARM) after ~5 years of development efforts. Thus a shift in leadership could be welcome news to investors as Intel could be in greater position to broaden its portfolio into higher growth markets. He believes that the company could be better-served choosing a successor with a product/sales focus in-order to broaden and deepen customer relationships vs. a candidate with a technical/manufacturing focus.

Ambrish Srivastava, PhD, an analyst at BMO, notes that  it is interesting to us that the board is willing to look outside. This is a company with a very deep rooted internal culture and few executives have come from outside and succeeded. However, his sense was that a certain wireless executive(s) name(s) was doing the rounds of a long-time successor to Mr. Otellini, well before this news hit.  Regardless, Intel Corporation (NASDAQ:INTC) has many challenges ahead, and the new CEO will have his/her hands full.

Analysts at Pipper Jaffary  do not view the decision as entirely unexpected. They suspect potential internal candidates would include CFO Stacy Smith, COO Brian Krzanich or Dadi Perlmutter. They continue to believe the incoming CEO, internal or external, will have a long road to righting this ship.

Disclosure: No position