Ian King San Francisco
Intel, seeking a replacement for departing chief executive Paul Otellini, needs a candidate with credentials that internal contenders lack: a record of success in the market for semiconductors used in mobile devices.
The largest chip maker said on Monday that it had named chief operating officer Brian Krzanich, chief financial officer Stacy Smith and software head Renee James to the position of executive vice-president. The promotion marked them as most likely to succeed Otellini, who is leaving three years before he reaches Intel’s mandatory retirement age.
Intel ascended to the top of the personal computer (PC) industry with a strategy of hiring chief executives from within, and people with knowledge of the plan said it was leaning toward internal candidates this time. Yet under Otellini and his deputies, Intel has failed to make headway in the market for mobile devices and may be well served by a chief executive from outside who can do a better job equipping the US-based company for a post-desktop era marked by surging demand for tablets and smartphones.
“I don’t know if any of them have the star power that you may need in a new Intel chief executive,” said Craig Berger, an analyst at FBR Capital Markets. “It’s going to be a difficult and challenging transition for anybody.”
An executive from Apple or Qualcomm, which have sprinted ahead in semiconductors for mobile devices, might be a better fit, Berger said.
Doug Freedman, an analyst at RBC Capital Markets, said Sanjay Jha, a former chief executive of Motorola, should be considered.
Intel said its board would weigh internal and external candidates to replace Otellini when he retired in May next year. The company has never chosen a chief executive who was not groomed internally. Intel instead typically has appointed its operating chief to the top post. Otellini and his predecessor, Craig Barrett, stepped up from that position.
“We have excellent internal candidates but will also look outside,” Intel spokesman Chuck Mulloy said.
Krzanich, 52, was promoted to chief operating officer in January. He was head of the company’s manufacturing operations and took on added responsibility for human resources. He joined Intel in 1982 after graduating from San Jose State University with a degree in chemistry.
Krzanich has been in charge of the factories that helped Intel outpace competitors in the production of chips. Intel has been trying unsuccessfully to use its prowess in PCs to establish a beachhead in semiconductors for mobile devices.
“The strategy is in place, but the market isn’t recognising it yet,” said Kevin Cassidy, an analyst at Stifel Nicolaus.
James, 48, would be Intel’s first female chief executive if she were chosen. Her background would make her well suited for the top job, given the role software plays in setting direction for the hardware running it, said Hans Mosesmann, an analyst at Raymond James & Associates.
“She thinks outside the box and is a software person,” Mosesmann said. “That, in many regards, is the future.”
Smith, 50, has held positions in sales and marketing and finance and became assistant chief financial officer in 2006 before ascending to the top finance spot the following year.
“Stacy [Smith] is the most focused of the three, but do you want a finance guy running a technology company?” Freedman asked.
Executive vice-president Sean Maloney, who heads Intel’s operations in China, was a chief executive contender before he suffered a stroke in 2010. Maloney is due to retire in January.
Intel succeeded for years with a strategy of making powerful chips that help machines carry out complicated tasks quickly. Now, the priority is chips that sip power and help smaller computers carry out multiple tasks at the same time.
“The board is going to have to be forward looking and find somebody who is outside who would make a difference,” Mosesmann said.
Chips based on ARM Holdings technology are at the heart of almost all phones and tablets. ARM licenses its designs and technologies to companies including Apple, Qualcomm and Samsung Electronics.
Intel should consider an executive with experience of changing course at a large company, Freedman said. “If the board really wants a change, they have to get a turnaround guy. That’s difficult for a company the size of Intel. You’d need someone from a big company.”
The board might look at Jha, formerly of Motorola Mobility, or executives from Qualcomm, Freedman said.
Jha, 49, also served as operating chief at Qualcomm.
Another possible contender is Qualcomm chief operating officer Steve Mollenkopf.
Qualcomm, the largest maker of chips for cellphones, surpassed Intel in market value for the first time earlier this month and is predicting double-digit earnings growth for the next five years.
Otellini helped Intel rebound from a 42 percent drop in profit in 2006 as it lost share in the server market to Advanced Micro Devices. He presided over record profit and sales for two years, starting in 2010. Slow factory output and rising stockpiles of unsold chips led Intel to forecast fourth-quarter profit margins last month that fell short of analysts’ estimates.
The total PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS iSuppli. That would be the first annual decline since 2001, it said.
Canaccord Genuity analysts projected that 711.4 million smartphones would be sold this year, a gain of 44 percent. The market will grow 35 percent next year, they added.
Earlier this year Intel announced its first customers in phones, including Google’s Motorola unit. – Bloomberg