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Pat Gelsinger will become Intel’s new CEO on February 15.
Patrick T. Fallon / Bloomberg
A little over twenty years ago, Pat Gelsinger became
Intel‘s
very first chief technology officer. The engineer earned the award after leading the design of the groundbreaking 486 computer processor and winning the respect of CEO Andy Grove, who guided him for years.
However, Gelsinger didn’t get Grove’s best job. After 30 years at Intel (ticker: INTC), he left in 2009. Now Gelsinger is back, with the position of CEO he probably always wanted. He takes over from Bob Swan on February 15th.
Gelsinger has done his job for him. When Intel reports fourth-quarter earnings on Thursday, the chip giant is expected to generate massive annual profits of nearly $ 21 billion on revenues of $ 75 billion. However, analysts predict declines in 2021. A series of manufacturing problems at Intel have enabled rivals
Advanced micro-devices
(AMD) and
Nvidia
(NVDA) to gain market share in major chip markets.
Intel shares fell 17% in 2020, even as the benchmark PHLX Semiconductor index rose 51%.
In November, near the lowest level of 2020, Barron’s argued that Intel still held great value and could regain its courage with fresh ideas and bold new management. Since our article, the stock is up nearly 30%, versus a 5% gain for the S&P 500 index. Intel stock has been boosted by a push campaign from activist investor Daniel Loeb, who demanded a significant change of Intel governance in late December.
Gelsinger’s appointment is a step in the right direction. His technical expertise is in stark contrast to the financial background that brought Swan into the job.
Dan Niles, a longtime chip investor and portfolio manager of the Satori Fund, says Gelsinger’s appointment reminds him of Satya Nadella’s CEO promotion at
Microsoft
(MSFT). “My belief for technology companies – for any company – is that having someone in the company’s DNA is important,” says Niles. Since Nadella became CEO in 2014, Microsoft stock has returned 576%, compared to the S&P 500’s return of 149%.
At the same time, Gelsinger brings the benefits of an outsider. He spent three years as Chief Operating Officer at EMC before becoming CEO of software pioneer
VMware
(VMW) in 2012. Understanding both software and hardware engineering has become critical to success in the chip industry.
Moor Insights & Strategy analyst Patrick Moorhead, who worked at AMD during Gelsinger’s Intel tenure, describes him as a tough competitor, a good performer and someone who can motivate people. “That’s what Intel needs,” he says.
Gelsinger’s most pressing issue is addressing Intel’s manufacturing issues. For a company that has long insisted on doing things internally, there is no easy fix. Precision at the atomic level, enormous capital costs and competition for top talent make it a process of years.
When it comes to the most advanced chips, Intel is already far behind the manufacturing powerhouse
Semiconductor manufacturing in Taiwan
(TSM), which builds chips for AMD and Nvidia, as well
Apple
(AAPL). Gelsinger will have to decide whether to ease Intel’s comprehensive approach to chips and outsource more work to a manufacturer like Taiwan Semi. That has become Wall Street’s preference in recent months.
One of Swan’s most significant final moves at Intel will likely be a manufacturing update during the company’s earnings call on Thursday. After that, the future of Intel will be in the hands of Gelsinger. The good news for Intel investors is that he’s probably the best person for the job.
Write to Max A. Cherney at [email protected]