Should Intel double-up on leadership? Still no word on next CEO as deadline looms

Summary:Intel's new CEO will have to build a major chip foundry business from near scratch, and win big in mobile chip sales and in traditional chip markets — two very different jobs.

With just weeks to go, Intel [$INTC], the world's largest chipmaker, has yet to name a new CEO, even though it's had nearly four months since Paul Otellini made a surprise announcement that he would retire in May 2013.

This is a very unusual situation because Intel has a long tradition of providing a clear CEO succession path well ahead of any changes.

However, it appears that its board was surprised by Mr Otellini's resignation in August. At 62 years old he was expected to serve until 65, Intel's mandatory retirement age. 

Sean Maloney, a senior VP and 30-year veteran, was being groomed for the top job, but he suffered a huge stroke in 2010.

Mr Maloney told SVW, "Imagine waking up and you can't talk?" He said he has mostly recovered from the stroke but Intel hasn't because it still hasn't managed to name a successor to Mr Otellini, or signal potential candidates in the three years since Mr Maloney's stroke.

In late January Intel promoted eight vice presidents, which would have also provided a good opportunity to name the next CEO.

Intel's board said it would consider outsiders, a move that some Intel watchers would welcome as a way of possibly boosting the company's sluggish stock market performance under its current CEO. 

Intel's share value changed little from the day when Mr Otellini took over as CEO and the day of his resignation.

And this is what has frustrated Intel's board and its investors, that its stock market performance hasn't reflected the company's considerable growth in revenues and profits under Mr. Otellini's leadership.

There's a perception among investors that Intel is losing out to tiny British chip designer ARM, whose microprocessors are popular in mobile phones and tablets — a strategic market that's growing far faster than desktops and notebooks.

Reuters reporters Noel Randewich and Nadia Damouni write that the next Intel CEO will have to execute on a strategy begun by Mr Otellini, the building of a major contract chip manufacturing business.

Manufacturing chips on behalf of other companies is a major departure for Intel, which for decades has based its business on using its manufacturing prowess to offer its own PC chips superior to rival products. As PC sales contract and Intel's fabrication plants operate at less than full capacity, the chipmaker sees an opportunity to fill idle production lines while earning new revenue.

Foremski's Take:

Intel is up against a formidable competitor, industry leader Taiwan Semiconductor Manufacturing Company, if it is to succeed in the foundry business.

Although Intel has a technology lead over TSMC of as much as two years, it will need that time and more, to learn how to work with large numbers of fabless chip companies, and how to transfer their designs to its unique chip making process — a far from trivial task.

Intel's internal culture is not one that welcomes chip designs from outside the company. This won't help if a customer wants Intel to build chips with ARM designs. This would be essential if Intel hopes to win Apple's chip contract.

It's a tough business and it's a business that Intel's tried before, in the late 1990s, and abandoned. 

The considerable challenges in building the contract chip business will occupy much of the time of the next CEO. It means less attention to answering Wall Street's serious concerns about the lack of Intel chips in mobile phones and tablets.

Winning big in the mobile chips markets is key for Intel's efforts to boost its share value and placate some of its Wall Street critics.

However, success in mobile chip markets, and in building a major contract chip manufacturing division, will pressure lucrative profit margins. Intel's next CEO will have to figure out how to prevent revenues from new business lines dragging on its quarterly financial results and upsetting investors.

The only way Intel can keep its high profit margins is by leveraging its lead in keeping Moore's Law alive and still very relevant. It's able to make the world's smallest transistors and cram more chips onto a wafer than anyone else, which means very low costs per chip.

But competitors aren't far behind and Intel will have to execute in near perfect order with little room for mistakes.

With two very different business challenges, it's not surprising that finding the next CEO is taking so much time. Maybe this is a good time for Intel to consider a two-CEO arrangement similar to that at SAP, the German software giant.

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Please see: Intel's search for leadership | ZDNet

Topics: Intel

About

In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to make a living as a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley.Tom arrived in San Francisco in 1984, and has covered US technology markets for leadi... Full Bio

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