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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
Intelof
very first CTO. The engineer earned the distinction after leading the design of the revolutionary 486 computer processor and earning the respect of general manager Andy Grove, who mentored 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 CEO role he arguably wanted from the start. He succeeds Bob Swan on February 15.
Gelsinger has his work cut out for him. When Intel releases its fourth-quarter results on Thursday, the chip giant is expected to generate a massive annual profit of nearly $ 21 billion on sales of $ 75 billion. Analysts, however, predict declines in 2021. A series of manufacturing problems at Intel have allowed rivals
Advanced micro-systems
(AMD) and
Nvidia
(NVDA) to take shares in key chip markets.
Intel shares fell 17% in 2020, even as the benchmark PHLX Semiconductor jumped 51%.
In November, near the share’s low in 2020, Barron’s argued that Intel was still very valuable and could regain its mojo with new ideas and bold new management. Since our article, the stock is up nearly 30%, compared to a 5% gain for the S&P 500 index. Intel shares have been boosted by a campaign of pressure from activist investor Daniel Loeb, which demanded a significant change in Intel’s board of directors at the end of December.
The appointment of Gelsinger is a step in the right direction. His technical expertise stands in stark contrast to the financial background that Swan brought to the job.
Dan Niles, a longtime chip investor and Satori Fund portfolio manager, says Gelsinger’s appointment reminds him of Satya Nadella’s promotion to
Microsoft
(MSFT). “My belief for tech companies – for any business – is that it’s important to have someone with the company’s DNA,” Niles says. Since Nadella became CEO in 2014, Microsoft stock has returned 576%, compared to a 149% return for the S&P 500.
At the same time, Gelsinger brings the benefits of a stranger. He spent three years as COO at EMC before becoming CEO of the software pioneer
VMware
(VMW) in 2012. Understanding both software and hardware engineering has become essential for success in the chip industry.
Moor Insights & Strategy analyst Patrick Moorhead, who worked at AMD during Gelsinger’s tenure at Intel, describes him as a fierce competitor, a good executor and someone who can motivate people. “This is what Intel needs,” he says.
Gelsinger’s most pressing issue will be how to tackle Intel’s manufacturing issues. For a business that has long insisted on doing things in-house, there are no easy fixes. Atomic-level precision, huge capital costs, and competition for top talent make it a multi-year process.
When it comes to the most advanced chips, Intel is already way behind in manufacturing power
Semiconductor manufacturing in Taiwan
(TSM), which builds chips for AMD and Nvidia, as well as
Apple
(AAPL). Gelsinger will have to decide whether to relax Intel’s overall approach to chips and outsource more work to a manufacturer like Taiwan Semi. It has become the preference of Wall Street in recent months.
One of Swan’s last big acts at Intel will likely be a manufacturing update during the company’s earnings call on Thursday. After that, Intel’s future is in Gelsinger’s hands. The good news for Intel investors is that he’s probably the best fit for the job.
Write to Max A. Cherney at [email protected]
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