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When I woke up this morning, I was very unpleasantly surprised to hear that Intel's (NASDAQ:INTC) current CEO, Paul Otellini, was planning to retire early. While many will naively be cheering for this development, I have to stress that this is probably one of the worst things that Intel shareholders could have woken up to on 11/19.

Some Background

Before Intel CEO Paul Otellini took the helm in 2005, the company was, quite frankly, a mess. Intel - despite its huge capital and resources - was getting beaten down badly by much smaller competitors like Advanced Micro Devices (NYSE:AMD), due primarily to a mismanagement of the firm's vast engineering resources.

Otellini changed all of that. Under him, the firm began its "tick-tock" strategy that has ensured that in every field it plays in, the company takes the lead very quickly. While The Street's Rocco Pendola believes that it's about time, the author misses the fact that under Otellini, Intel achieved milestones that far exceed the low ASP smartphone processor market, including:

  • Becoming the dominant PC processor vendor by leading a crusade towards ever-improving performance-per-watt and system integration
  • Becoming the dominant server processor vendor (i.e. owning HPC, cloud, etc.)
  • Scoring the Apple (NASDAQ:AAPL) design win in the Mac products (Intel is now in the iMac, MacBook, MacPro, and MacMini)
  • Became the #2 contributor to the Linux kernel (which was instrumental in getting Android up and running on x86 so quickly)
  • Got Intel through the financial crisis without cutting its core R&D

This led to record revenues in 2011 at a staggering $54B, up 23% from 2010.

Paul Otellini has been an excellent CEO, and he was one of the major reasons that I am bullish on Intel's prospects.

What's Next?

Well, Intel has 6 months to find a new CEO. The firm noted in its press release that the hunt for the new executive will include combing through internal and external candidates. As an Intel shareholder, I would be much more comfortable with an internal candidate than an external one simply because there are no other companies out there that are like Intel. Who else has both leading-edge semiconductor manufacturing as well as leading edge design in everything from mobile SoCs to the biggest of the big iron server processors along with the software expertise to fully utilize it? Nobody.

The candidates internally seem to be:

  • Renee James - Head of the software business
  • Brian Krzanich - COO and head of the manufacturing business
  • Stacy Smith - CFO and director of corporate strategy

I would personally bank on Mr. Krzanich given how well the manufacturing side of Intel has been run, but it is too early to rule out the other candidates.

Externally? It is tough to imagine who else would be qualified for the job, although I am sure that we will get more clarity on this in the coming months.

Conclusion

Otellini's retirement is not a good thing and shareholders have every right to be nervous. This CEO turned Intel into an execution machine after years of missteps (like the Pentium 4 disaster - the chip was hot, power hungry, and inferior to the competition). I now wait nervously to find out who the next CEO of Intel will be.

Source: Intel: Retirement Of CEO Paul Otellini Is Bad News