Intel Corp. is in a quandary. It is the world’s biggest chipmaker by revenue, alone accounting for more than one-quarter of the $335 billion global semiconductor market. But it is also one of the most endangered companies in the electronics industry because of its now dangerously huge – but once celebrated – exposure to the PC market. For the first time in its nearly 50-year history some analysts are openly suggesting Intel seek more external candidates for some of its senior executive positions, including the potential successor to CEO Brian Krzanich.
The company’s misery deepened this month when Gartner Inc. noted PC sales tumbled 10 percent in the first quarter. Forecasts for the rest of the year will most likely be pared back by analysts. Intel’s results – to be announced today – showed not just how well the company performed but also what its future holds. For now, though, it’s evident PC microprocessors, the products that once propelled Intel to the top of its market, now appears to be suffocating the company. The company noted it will cut 12,000 positions and take a $1.2 billion charge in continuation of its "digital" transformation.
“Our first-quarter results tell the story of Intel’s ongoing strategic transformation, which is progressing well and will accelerate in 2016,” Krzanich said, in a statement announcing first quarter results. “We are evolving from a PC company to one that powers the cloud and billions of smart, connected computing devices.”
The need for a new, revitalized and more competitive Intel to emerge from the old enterprise seems clear to everyone, including Intel’s management. And they have tried to do something – a lot of things, actually – about it. Over the course of almost 20 years, the company has spent billions of dollars on acquisitions, poured many more billions into R&D at home and abroad, sharpened its manufacturing edge to fend off competitors and branched into new markets.
In short, it has tried and done most of the things any expert or management consultant would recommend to refocus its business and neutralize the crippling effects of the disruptive waves sweeping across the global economy and the technology industry.
This isn’t a new move on Intel’s part. It has been trying to be anything but a “PC microprocessor” company for at least the last decade. The recent $16.7 billion acquisition of Altera, a manufacturer of programmable chips, was only the latest in a long line of M&A deals Intel has done to break into new markets and reduce its dependence on the PC and server sectors. And yet the challenges keep coming.
After jumping in 2104, Intel’s sales have stalled again, dropping slightly to $55.4 billion in 2015 from $55.9 billion in the previous year. Analysts on average expect revenue to increase this year to $58.3 billion but this projection could be in jeopardy. Sales in the first quarter were flat from the comparable quarter of 2015 and current projections for a stronger second quarter may turn out to be too optimistic considering ongoing PC market weakness.
So what else can Intel do to regain sales strength and remove this darkening cloud threatening its long-term leadership of the IC market? Some industry observers believe Intel could benefit from adopting a radical succession plan. Since it was founded in 1968 Intel has been led by a succession of CEOs who all rose through the company’s management rank. Krzanich is the sixth top executive to lead the company. He worked his way up after joining as a process engineer in 1982, taking over from Paul Otellini, another Intel veteran who joined the company in 1994 and spent his entire career there. Insiders said Intel had considered naming an outsider to succeed Otellini but instead chose Krzanich because of his deep knowledge of the company.
That line of reasoning may expire with Krzanich, though. A rash of executive departures recently indicates Intel’s top boss may believe the company needs to rethink its succession planning. The departure last July of 28-year veteran Renée James who rose to the position of president and had contended with Krzanich for the CEO job marked the beginning of senior management changes at Intel.
Other notable departures since then include Kirk Skaugen, head of PC and mobile business. It is believed that Aicha Evans, VP, platform engineering group, and Douglas Davis, senior VP and general manager, Internet of Things, are also leaving the company. It’s not just the departure of these senior executives that has set tongues wagging, though. The addition in November of Venkata Renduchintala as president of Intel’s Client and Internet of Things Businesses and Systems Architecture group has been most notable. His division includes most of Intel’s core business groups, including platform engineering, client computing, IoT, software and services as well as design and technology solutions, according to Intel.
In some ways, Renduchintala is the most obvious successor to Krzanich amongst Intel’s deep well of senior executives, observers noted. The former Qualcomm executive was charged with driving a “faster” achievement of Intel’s growth, according to Krzanich. Renduchintala may not get the job (at 50, he is close enough in age to Krzanich who turns 56 in May) but it’s clear his addition to the rank of senior executives marks the beginning of a new approach at the company.
Only time will tell whether an outside executive is the missing catalyst Intel needs to successfully complete its transformation.