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Intel CEO retiring amidst company lackluster performance

Intel Corp is set to look for the successor of its CEO Paul Otellini after he revealed his plan to retire earlier than expected. The company is opening its doors for both intenal and external hires for the top job, as Intel struggles to adapt to the fast changing tech landscape dominated by mobile computing.

Historically, Intel had been getting CEOs from its own workforce, but the onslaught of mobiles will probably break that tradition. The company will be in a transition period of 6 months as Otellini is set to vacate his post this coming May 2013.

Otellini, 62, will retire 3 years before the mandatory retirement age for CEOs of 65. He has worked for Intel for almost 40 years and was appointed CEO in 2005.

His resignation was voluntary and the move surprised the board, which tried to convince him to stay, said Chuck Mulloy, Intel spokesman.

Some analysts approve Intel’s intention to try hiring a new head outside its ranks to give a much needed shakeup in strategy when the computing market shifts  from PC to mobile.

But Mulloy said that internal candidates have an edge due to the company’s engineer-driven culture, size, as well as complexity.

He said: “For any company of the size and complexity of Intel, an internal candidate would have a natural advantage. Good corporate governance dictates today you should look inside and out.”

Intel’s chips are bestsellers in PC manufacturing but the company had been slow in the mobile business. Top mobile gadgets like Apple’s iPads and iPhones as well as other smartphones are using British ARM Holdings Plc’s chip technology.

“We all know that everyone is using smartphones and tablets now. It’s the era of Intel versus ARM, so it may be good to come in with some fresh blood and a new perspective,” Analyst Patrick Wang from Evercore commented.

Intel has announced that three of its executives will be promoted to executive vice presidents namely:  Renee James, the current head of Intel software; Brian Krzanich, the chief operating officer and in charge of manufacturing; and Stacy Smith, the director of corporate strategy and chief financial officer.

Both Krzanich and Smith had long been viewed as potential CEO candidates by Wall Street.

“There is a comfort level with Stacy (Smith),”  analyst Williams Financial from Cody Acree said.

Krzanich is a known effective leader and made a name for himself by improving the efficiency of Intel’s factories. Promoted to chief operating officer last March, he is a strong contender for the CEO post as well as leading Intel into the future.

Intel has a long history of promoting CEOs within its ranks. Founded in 1968, Intel has become the number one chip maker during the “PC era”, with its name almost becoming synonymous with personal computing. As it recognizes that PC days are numbered, looking for outside candidates looks a rational thing to do.

“Previous CEO transitions have all involved carefully groomed internal candidates. But if Intel’s board is now looking externally — to bring in new skills — that would explain the lack of a named successor and length of time in transition,” commented analyst JoAnne Feeney of Longbow Research.

Evidently, Intel’s board is facing a tough task in looking for an outsider armed with an effective strategy to transition the company from its PC era days to today’s mobile computing world. The board may also be having trouble finding an external candidate with the experience of running Intel’s high-end factories that gave the company the edge over its competitors.

There are not many executives in the United States with enough experience running factories for chips as production had been outsourced overseas over the past two decades.  Each Intel plant costs over $10 billion to build.

Intel had been hurt by the slowing growth in China, fumbling economies in the United States and Europe, as well as the weakening demand for PC shipments around the world. The company’s production lines are running at less than 50 percent of their capacity.

Intel made a fortune when it entered into a historic partnership with Microsoft Corp, generating high profits as well as an 80 percent market share.

The advent of battery-powered smartphones and tablets was the company’s struggle as it tries to adapt its PC processors to the new gadgets. It’s total market share for smartphones is not even 1 percent.

source: reuters