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Pat Gelsinger will become Intel’s new CEO on February 15.
Patrick T. Fallon / Bloomberg
Just over twenty years ago, Pat Gelsinger became
Intelin
the first director of technology in history. The engineer won the distinction after leading the design of the innovative 486 processor and earning the respect of Chief Executive Andy Grove, who has guided him for years.
Gelsinger did not get Grove’s primary job, however. After 30 years at Intel (ticker: INTC), he left in 2009. Now Gelsinger is back, with the CEO role he presumably always wanted. He replaces Bob Swan on February 15.
Gelsinger has a difficult job for him. When Intel reports fourth-quarter earnings on Thursday, the chip giant is expected to generate a huge annual profit of nearly $ 21 billion in sales of $ 75 billion. Analysts are predicting declines in 2021, however. A number of manufacturing problems at Intel have allowed rivals
Advanced micro devices
(AMD) and
Nvidia
(NVDA) to participate in the main chip markets.
Intel shares plunged 17% in 2020, even as the PHLX Semiconductor benchmark rose 51%.
In November, close to the low of the stock in 2020, Barron’s he argued that Intel still had a lot of value and could win back its mojo with new ideas and bold new management. Since our article, the stock has risen nearly 30%, against a 5% gain for the S&P 500 index. Intel’s stock was driven by a pressure campaign by activist investor Daniel Loeb, which demanded a significant change in Intel’s board on end of December.
Gelsinger’s appointment is a step in the right direction. His technical experience is a clear contrast to the financial experience that Swan brought to work.
Dan Niles, a former chip investor and portfolio manager at Satori Fund, says Gelsinger’s appointment reminds him of Satya Nadella’s promotion to CEO at
Microsoft
(MSFT). “My belief for technology companies – for any company – is that having someone from the company’s DNA is important,” says Niles. Since Nadella became CEO in 2014, Microsoft shares have returned 576%, compared to the 149% return on the S&P 500.
At the same time, Gelsinger brings the benefits of a stranger. He spent three years as EMC COO before becoming CEO of the software pioneer
VMware
(VMW) in 2012. Understanding software and hardware engineering has become critical to success in the chip industry.
Moor Insights & Strategy analyst Patrick Moorhead, who worked at AMD during Gelsinger’s management at Intel, describes him as a great competitor, a good performer and someone capable of motivating people. “This is what Intel needs,” he says.
Gelsinger’s most pressing issue will be dealing with Intel’s manufacturing problems. For a company that has long insisted on doing things internally, there is no easy solution. Atomic level precision, huge capital costs and competition for the best talent make this a process that lasts for years.
When it comes to the most advanced chips, Intel is already way behind the manufacturing power
Semiconductor manufacturing in Taiwan
(TSM), which creates chips for AMD and Nvidia, as well as
Apple
(AAPL). Gelsinger will have to decide whether to soften Intel’s comprehensive approach to chips and outsource more work to a manufacturer like Taiwan Semi. This has become Wall Street’s preference in recent months.
One of Swan’s significant final acts at Intel is likely to be a manufacturing update during the company’s earnings conference call on Thursday. After that, Intel’s future is in Gelsinger’s hands. The good news for Intel investors is that he is likely to be the best person for the job.
Write to Max A. Cherney at [email protected]