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Analysis
Paul Otellini

Why Intel should look inward for its next CEO

Posted on 22 Nov 2012 at 10:37

Following CEO Paul Otellini's retirement, analysts believe promoting from within will give Intel the best chance of future success

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 raised eyebrows this week when it said it will consider an outsider to take over from outgoing CEO Paul Otellini, potentially ending a four-decade tradition of internal succession. Some took that as a sign that the chipmaker may be looking for a transformation.

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 coming up with the Ultrabook - which has so far failed to excite consumers.

Gurus with the experience to run a company with $53 billion a year in sales are few and far between - and even rarer outside Intel

A future leader not steeped in Intel's insular culture could open its prized factories for the first time to outside customers such as Apple, or pursue other new strategies to expand into tablets and smartphones, said analyst Nathan Brookwood of consulting firm Insight 64.

But any investor hoping Intel will hire an outsider with a dramatic solution to the firm's PC plight may be out of luck. While the idea of an iconic visionary like Steve Jobs stepping in to lift Intel into the mobile market 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 Intel.

"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."

You don't want somebody like a Leo Apotheker coming on and being your complete undoing

HP exemplifies the risks of a poorly thought-out external hire, say analysts. 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 en route to swallowing an $8.8 billion charge. 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, of Heritage Search Partners in California, said Intel's culture needs a shake-up 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."

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 favour him, believing he is the best bet for keeping Intel stable.

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