Intel CEO Search Pits Insiders Against Mobile-Chip Vetera

Nov. 20 (Bloomberg) — Intel Corp., seeking a replacement
for departing Chief Executive Officer Paul Otellini, needs a candidate with credentials internal contenders lack: a record of success in the market for mobile-device semiconductors.

The world’s largest chipmaker said yesterday that it 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’s leaving three years before Intel’s mandatory retirement age.

Intel ascended to the top of the personal-computer industry
with a strategy of hiring CEOs from within, and it’s leaning toward internal candidates this time as well, people with
knowledge of the plan said. 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 CEO from the outside who can do a better job equipping Intel for a post-PC 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 CEO,” said Craig Berger, an analyst at FBR Capital Markets & Co. “It’s going to be a difficult and
challenging transition for anybody.”

An executive from Apple Inc. or Qualcomm Inc., which have
sprinted ahead in semiconductors for mobile devices, might be a better fit, Berger said. Sanjay Jha, former CEO of Motorola
Mobility Holdings Inc., should be considered, said Doug
Freedman, an analyst at RBC Capital Markets.

Looking Outside

Intel’s board will weigh internal and external candidates
to replace Otellini when he retires in May, Intel said yesterday in a statement. The company has never chosen a CEO who wasn’t 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,” Chuck Mulloy, an Intel spokesman, said in an e-mailed statement.

Krzanich, 52, was promoted to the COO role 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.

As COO, 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.

Renee James

“The strategy is in place, but the market isn’t
recognizing it yet,” said Kevin Cassidy, an analyst at Stifel Nicolaus & Co.

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 Inc.

“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 CFO in 2006 before ascending to the top finance spot the following year.

“Stacy is the most focused of the three, but do you want a
finance guy running a technology company?” said RBC’s Freedman.

Executive Vice President Sean Maloney, who heads Intel’s
operations in China, was a CEO contender before he suffered a stroke in 2010. Maloney is due to retire in January.

‘Turnaround Guy’

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 Plc 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 Co.

Intel should consider an executive who has experience
changing course at a large company, said Freedman at RBC.

“If the board really wants a change, they’ve got to go and
get a turnaround guy,” Freedman said. “That’s difficult for a company the size of Intel. You’d need someone from a big
company.”

Sanjay Jha

The board might look at Jha, formerly of Motorola Mobility,
or executives from Qualcomm, Freedman said. Jha, 49, also served as operating chief at San Diego-based Qualcomm. Another possible contender is Qualcomm COO Steve Mollenkopf.

Qualcomm, the world’s largest maker of chips for phones,
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 the company 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 the company 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’s the first annual decline since 2001, the market researcher said.

About 711.4 million smartphones will be sold this year, a
gain of 44 percent, Canaccord Genuity Inc. analysts projected in a report. The market will grow 35 percent next year, the
analysts estimated.

Intel this year announced its first customers in phones,
including Google Inc.’s Motorola unit. As yet, the company has less than 1 percent of that market, according to research firm Forward Concepts Co.

To contact the reporter on this story:
Ian King in San Francisco at
ianking@bloomberg.net

To contact the editor responsible for this story:
Tom Giles at
tgiles5@bloomberg.net

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