Intel Corp CEO Paul Otellini is retiring in May, giving the world’s largest maker of microprocessors six months to find a new leader as it confronts two major challenges: a shaky economy and a shift toward mobile devices that is reducing demand for its PC chips.
Although Otellini’s impending departure was announced on Monday, he notified Intel’s board of his retirement plan on Wednesday last week. The decision surprised Intel’s board of directors, which had been expecting Otellini to remain CEO until the company’s customary retirement age of 65. Otellini is 62.
“The decision was entirely Paul’s,” Intel spokesman Paul Bergevin said. “The board accepted his decision with regret.”
Otellini will be ending a nearly 40-year career with Intel, including an eight-year stint as CEO by the time he leaves. He joined the Santa Clara, California company after graduating from the nearby University of California at Berkeley and worked his way up the ranks before succeeding Craig Barrett as CEO in May 2005.
“It’s time to move on and transfer Intel’s helm to a new generation of leadership,” Otellini said in a statement.
Intel’s board plans to consider candidates inside and outside the company as it searches for Otellini’s successor. Otellini will be involved in the search.
Otellini and the four other men who have been Intel’s CEO during the company’s 45-year history have all been promoted from within. The company’s board is believed to be leaning in that direction again.
Intel identified the leading internal candidates on Monday by anointing three of Otellini’s current lieutenants as executive vice presidents. They are: Renee James, head of Intel’s software business; Brian Krzanich, chief operating officer and head of worldwide manufacturing; and Stacy Smith, chief financial officer and director of corporate strategy.
If recent history is any indication, Krzanich has the inside track to become Intel’s CEO. Both Barrett and Otellini served as chief operating officer before becoming CEO.
Although Otellini is generally well regarded, he has faced criticism for initially underestimating the impact that smartphones and tablet computers would have on the PC market. It was a pivotal change that also confounded Microsoft Corp CEO Steve Ballmer, whose software company makes the Windows operating system that runs most of the PCs relying on Intel’s chips.
“The shift came more quickly than they expected, and when they did finally see what was happening, they were a little late to react,” technology analyst Patrick Moorhead of Moor Insights & Strategy said.
Indeed, in 2008, nearly 300 million PCs were sold and most of them were powered by Microsoft’s Windows and Intel’s microchips, according to Forrester Research. About 142 million smartphones were sold that year, at a time when the tablet market had not really taken off. That would not happen until Apple’s 2010 release of the iPad.
By contrast, this year, Forrester estimates 330 million PCs will be sold worldwide compared with 665 million smartphones and just over 100 million tablets. By 2016, Forrester predicts annual sales of PCs will rise only slightly to 370 million machines, while more than 1.6 billion smartphones and tablets will be purchased.
Intel’s stock was unchanged at US$20.19 shortly before the market closed on Monday. The stock has fallen more than 20 percent during Otellini’s reign. Most of the decline occurred this year amid concerns about the company’s ability to adjust to mobile computing and weakening demand for its core products in countries with troubled economies, particularly in Europe and China. The company blamed the poor economy for a 14 percent drop in its earnings during its most recent quarter.
Intel’s chips have become even more dominant in the PC market during Otellini’s tenure, helping to boost the company’s annual revenue from US$39 billion in 2005 to US$54 billion last year. However, Apple’s pioneering work in smartphones and tablet computers also muddled Intel’s future. Both the iPhone and iPad inspired a wave of sophisticated handheld devices that are undercutting demand for desktop and laptop machines that house Intel processors.
Most tablets rely on a technology licensed from British chip designer ARM Holdings PLC. Even Microsoft has tweaked the latest version of the Windows operating system so it works on ARM chips.
Other chipmakers such as Qualcomm Inc have developed less expensive microprocessors that have eclipsed Intel in the smartphone market. The contrasting performances of the two companies’ stocks enabled Qualcomm to surpass Intel as the world’s most valuable chipmaker. Qualcomm’s market value now stands at about US$106 billion versus US$100 billion for Intel.