Despite much praise for Intel’s (INTC) “transformation” under CEO Brian Krzanich, the announcement this morning that Krzanich is stepping down has suddenly prompted a rethink of Intel’s accomplishments.
Since his appointment five years ago, Krzanich has moved Intel from being what he referred to as “PC-centric,” tied to personal computers, to one that is more “diverse,” many would admit, with more and more revenue coming from memory chips, and with initiatives into machine learning with the purchase of Mobileye and Nervana Systems.
Krzanich resigned, Intel announced, after it was discovered by the company that he had “a consensual relationship with an Intel employee,” which is against the company’s “non-fraternization policy.”
The stock has returned roughly 153% while Krzanich was CEO, besting the S&P 500’s 91% rise. But suddenly, even bulls on the stock are finding reason to think the company needs some “shaking up.”
Intel shares ended the day down $1.27, or 2.4%, at $52.19. The stock is up 13% this year and up over 50% in the past 12 months.
One aspect of Intel that analysts are reconsidering today is its history of promoting from within: Since its founding 50 years ago, the company’s never had an outside CEO.
For the moment, Intel Chief Financial Officer Bob Swan is taking over the CEO spot, though the company said it has a “robust” process in place to decide on a permanent replacement for Krzanich.
Timothy Arcuri of UBS this afternoon reiterates a Buy rating on Intel stock, writing that the departure of Krzanich “opens the door” to an outside hire.
“Depending on the candidate, this could be a unique opportunity to fundamentally transform the company and fully re-think the approach to manufacturing (for example),” writes Arcuri. He’s referring to the controversial delays that have happened in Intel’s move to the next smallest feature size for its microprocessors.
Those delays have given competitors such as Advanced Micro Devices (AMD) a sudden advantage against Intel, some believe.
As Stacy Rasgon of Bernstein, who has a Market Perform rating on the shares, wrote this morning, “Of course BK will go down in history as the CEO that let Intel’s process leadership advantage slip away.”
Arcuri disagrees. “Management change is always uncertain and some investors are drawing incrementally negative conclusions around 10nm,” he writes, referring to the 10-nanometer transistor size that has caused Intel to stumble.
This isn’t Krzanich’s fault, he argues. The manufacturing challenges are “not new, and BK was not the source of the issues even in his prior role,” writes Arcuri.
New leadership from outside, he hopes, will help Intel “look to better align product with process.”
As Cowen & Co.’s Matthew Ramsay wrote this morning, finding someone from inside the company is difficult given so many executives have left Intel in recent years.
“We fail to see a clear internal long-term successor given recent changes to senior management,” wrote Ramsay. He lists the many major execs gone, including Diane Bryant, Stacy Smith, Kirk Skaugen, and Renee James.
There are no doubt many talented executives—younger and, in some cases, with less experience—at the company.
They include Aicha Evans, Intel’s chief strategy officer, who has been with the company for 12 years. Someone with more long-term experience is Navin Shenoy, the head of the company’s data center chip unit, who has been with the company 23 years.
Another fan of Intel who is nevertheless contemplating change is Pierre Ferragu, of the boutique firm New Street Research. He opines that Krzanich’s departure has “no impact to the company or our thesis,” adding, “but the management shake-up which follows it is interesting, and a positive.”
Ferragu notes Swan has “a solid track record,” and Ferragu’s chats with investors suggest he is a “strong lever” who may be able to “make things happen” with respect to the company’s “cost rationalization potential and portfolio rationalization potential at Intel.”
The transformation under Krzanich, writes Ferragu, has been a movement toward “diversification and expanding Intel’s addressable market.”
That’s a “strategy we would directionally support but that we think now needs serious tuning.
“There are activities Intel should probably consider abandoning (baseband), and the overall portfolio of initiatives likely requires some streamlining.
“It will be much easier to engage on these fronts with a new outsider CEO.”
Ferragu also opens the door to an activist coming in: “To us Intel remains before anything else an activist play.”
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