Nov. 20 2012 — 1:05 am Eric Savitz
The Tech Trade
Intel: Why Did The Board Boot Paul Otellini? And Now What?
So, why exactly did Paul Otellini decide to retire as Intel CEO at age 62, with years to go before reaching the company’s mandatory retirement age of 65?
The Street has a few theories, not the least of which is that the Intel board is unhappy with the company’s slow progress in making inroads against the ARM processor companies in mobile devices.
Here are a few comments on the situation from the Street:
•Doug Freedman, RBC Capital: “Otellini’s retirement is yet another challenge Intel has to fight through in the near-term,” he writes in a research note. “However, his eventual departure 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.”
•Hans Mosesmann, Raymond James: “We suspect that times are changing given the emergence of a near-viral architecture from UK-based ARM Holdings,” he writes. “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.”
•Craig Berger, FBR Capital: “Intel is quite challenged in the mobile arena, with handsets and tablets cannibalizing core PC sales, and with Intel not achieving solid success in handsets or tablets. As such, CEO Otellini’s departure could be related to the immense challenges Intel faces in competing in the mobile space,” he writes.
•Christopher Danely, J.P. Morgan: “[This is a] chance for Intel to stop thinking like Facebook and start thinking like Philip Morris,” he writes. “We believe the move to a new CEO is not an automatic positive unless Intel changes its focus from trying to be a growth company to focusing on its core PC microprocessor business and cutting opex and capex, raising margins, and increasing cash returns to shareholders.”
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