Intel (NASDAQ:INTC) just announced that current COO Brian Krzanich will become the new CEO of Intel starting on May 16th. I believe that Intel absolutely made the correct choice in selecting Mr. Krzanich for the position, and I further believe that investors clamoring for an "innovative" CEO have precisely zero clue what Intel is all about. First and foremost, Intel is a technical company, whose primary role is to build the best microprocessors on the planet. The people screaming, "Intel needs a mobile CEO" don't get Intel and are probably investing in the wrong company.
Who Were The Real Options?
I don't think for a second that Intel ever planned to hire an outsider. Why? It simply would not have made any sense. See, Intel is a unique company in this industry - it controls the world's most advanced (and arguably agile) semiconductor factory network and on top of that is a world class computing company. Not only does the company have top-notch hardware, but the company also has the software muscle required. There's a reason that without ARM (NASDAQ:ARMH) providing a common instruction set and sneaking in from the bottom (smartphones), many of the other computing companies didn't really have any prayer of entering the mainstream - it takes a lot to get widespread software support for your processor architecture.
Anyway, I don't think too many outsiders would be qualified to run the company. On the semiconductor manufacturing front, you could have seen Intel try to poach an executive from one of the chip equipment vendors such as Applied Materials (NASDAQ:AMAT), but then that individual would not really be suited to oversee the software/processor architecture parts of the business. For the Wall Street folks still wetting their pants over "mobile," it seems that Sanjay Jha formerly of Motorola Mobility was the "hot" name thrown around. One has to ask oneself - what in the world does a "mobile" guy know about semiconductor manufacturing, Intel's most valuable asset? Or even higher-end computing? Bad news bears all around.
Then of course, people started throwing around the bogus rumor that Nvidia's (NASDAQ:NVDA) CEO was in the running. Unfortunately, while Jensen Huang is a superbly capable CEO of Nvidia, and Nvidia is certainly a company that has strong hardware and software capabilities, I don't think that Mr. Huang would really be the right candidate for a manufacturing-oriented, capital-intensive semiconductor company.
You see the problem with going with an outsider? You can find some of what you need, but not all of what you need. The right leader needs to appreciate and continue to invest in Intel's manufacturing leadership, while at the same time knowing enough about computing to effectively run the actual business. This really narrowed it down to three choices, all insiders:
- CFO Stacy Smith (numbers guy)
- COO Brian Krzanich (runs manufacturing)
- EVP Dadi Perlmutter (chief product guy)
Dadi Perlmutter is 59 years old, so even if he wanted the job, he wouldn't be able to hold the post for more than 6 years (mandatory retirement at age 65 for CEOs). While this may not be a problem in practice, it could weigh on sentiment/create more uncertainty.
Stacy Smith would have been an interesting choice. He's very much the "public face" of Intel to investors, and quite frankly, I very much enjoy listening to him speak. He's smart, calm, and collected, and I think that despite his role as a numbers guy, he has a superb understanding of this highly technical business.
But Brian Krzanich was the right choice. Intel's processor architecture and software tools are world class, and there's not really much of a need for an executive to change the formula/do anything differently. Dadi - the Chief Product Officer - is very well known for leading the Israel team's effort to save Intel back when it was going down on a dark path with its "Netburst" micro-architecture. Thanks to Dadi and the Israeli team, Intel emerged as a leader in performance/watt oriented solutions in the PC space and has relentlessly kept the lead against archrival AMD (NYSE:AMD). Dadi will make sure that Intel's lead in other segments - such as smartphones, tablets, and micro-servers - is of similar magnitude going forward.
Think, then, of where Intel is going for growth. In addition to mobile computing, micro-servers, and so on, Intel will need a whole lot more unit volume to continue to bankroll further R&D and capex. This is where the "Intel Custom Foundry" comes into play. With deals at Altera (NASDAQ:ALTR) and Microsemi (NASDAQ:MSCC) already announced, and with the Cisco (NASDAQ:CSCO) deal pretty much confirmed, it is clear that the selective, high margin foundry business will be a source of growth and steady income going forward. This levers Intel to the broader semiconductor market in a way that making PC chips, server chips, and even mobile processors doesn't.
The best choice for the job of overseeing Intel's next big growth area is Brian Krzanich, the person who successfully led the manufacturing group for years. Forget the noise and realize that Intel thinks long term. If you're a trader, then you probably wish that the CEO announcement had a little more "kick", but if you're an investor, then you should feel comfortable with Intel's long-term future.
Additional disclosure: I may go long MSCC at any time. I am short ARMH