Intel’s Slow Progress on Ultra-Mobile Market Led to Early Retirement of CEO – Analysts

Financial Analysts Consider Reasons for Paul Otellini’s Early Retirement

by Anton Shilov
11/19/2012 | 11:46 PM

Even though Intel Corp.’s mandatory retirement age for chief executive officer is 65 years and Paul Otellini is just 62 years old, he still decided to proceed with the retirement next year. Financial analysts believe that the chief executive officer was forced to do so as the board of directors was unhappy with the company’s slow progress on the market of ultra-mobile electronics, including smartphones and tablets.

 

“[The] eventual departure [of Paul Otellini] is more likely a sign that Intel’s focus could increasingly shift outside of the traditional PC market. While Otellini has done a commendable job as CEO for the past 7 years, growing revenues at a 5% CAGR to our expected $53.5 billion in 2012, the company is feeling the pressure of 1) headwinds in its core PC market and 2) being unable to capturea sizable portion of the mobile SoC market (dominated by ARM) after ~5 years of development efforts. Thus a shift in leadership could be welcome news to investors as Intel could be in greater position to broaden its portfolio into higher growth markets. In our view, we believe the company could be better-served choosing a successor with a product/sales focus in-order to broaden and deepen customer relationships vs. a candidate with a technical/manufacturing focus,” Doug Freedman, an analyst with RBC Capital wrote in a note for clients, reports Forbes.

It is interesting to note that the decision of Mr. Otellini to retire was a surprise even for the chairman of the company, Andy Bryant, according to the Tech Trader Daily blog. The chairman himself believes that current challenges Intel faces with its ultra-mobile offerings can be addressed by advances in process technology, especially keeping in mind the fact that Intel is already the world's leading manufacturer of semiconductors.

“He and I talked a lot about this in past. After almost 40 years at Intel, and the Intel CEO job for 8 years, which is a really hard job, he felt it was time to move to the next generation of leadership. We do have big issues in front of us, moving to the tablet and phone markets, and he was ready to let the next generation lead those battles. I did everything I can think of to buy myself another year [of Otellini's leaderhip]. We were targeting further out for this. He surprised me last week when he said this,” said Mr. Bryant.

Even though it is hard to argue that Intel is facing problems with popularization of its products for ultra-mobile market, one thing that needs to be noted is that the company executes its roadmaps flawlessly and the problem for the company may not be the quality of products, but other factors, such as their prices or Intel’s traditional business approaches.

“We suspect that times are changing given the emergence of a near-viral architecture from UK-based ARM Holdings. This has been boosted by the rise of all things Apple (uses ARM in its mobile products), and has led to a diminishing importance in the Intel x86 instruction set. Building massive $10 billion dollar fabs just won’t cut it for Intel in our opinion, as had been so effective back in the day when AMD was the company’s sole mainstream competitor […] our bet is that Intel goes outside for its new CEO and a search that will not be trivial,” said Hans Mosesmann, an analyst with Raymond James.

While partly irrelevant or inefficient leadership is not very positive for Intel, the lack of a leader can be much worse than that. Moreover, a chief exec from outside of Intel may not be the best candidate as he will not share the corporate culture of the world’s largest chipmaker.