Krzanich Leaves Intel With Many Questions (and A Few Answers)

Intel (NASDAQ:INTC) CEO Brian Krzanich was forced to resign after internal and external auditors discovered that he had a past consensual relationship with a direct reportee in contravention of the company’s non-fraternization policy for managers. It ended his 30+-year stint at the company that he joined in 1982 to eventually lead as COO and then for the last five years, as CEO.

He may pick up as much as $44.5 million as a severance package, with around $37.5 million in stock awards and around $7 million on various accounts including deferred compensation, medical benefits and his pension plan.

Intel stock dropped around 2.4% on the news.

His leadership has been both good and bad for investors:

For one thing, he oversaw the departure of several Intel veterans including data center chief Dianne Bryant who moved to Alphabet (NASDAQ:GOOGL) last year, CFO Stacy Smith who retired, former president Renee James who resigned in 2015 to set up her own company in competition with Intel, Justin Rattner, Dadi Perlmutter and Kirk Skaugen. But he also brought in Robert Swan as CFO, who is now operating as interim CEO.

Second, Intel lost its process lead during his tenure because of issues in moving to 10nm. The smaller process node would have enabled Intel to continue producing smaller and faster chips, as it has forever done in the past. But Intel has given up that lead to TSMC with Globalfoundries and Samsung (KS:005930) likely to follow suit. This is perhaps the biggest disappointment, because it significantly skews competitive dynamics.

Third, Intel is seeing ever increasing competitive pressure from Advanced Micro Devices (NASDAQ:AMD) in both the data center and consumer (especially DIY) segments; from NVIDIA (NASDAQ:NVDA) in HPC, artificial intelligence, machine learning and autonomous driving technology; and even Qualcomm (NASDAQ:QCOM) has started nipping at its heels. To perhaps make matters worse, cloud customers like Amazon (NASDAQ:AMZN) , Alphabet, Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB) are both testing competitors’ offerings and developing their own capabilities.

This just isn’t the market that it used to be. To be fair, Intel hasn’t been napping, but has gradually expanded its served market to include not just CPUs but also FPGAs and memory to address the changing opportunities in the data center, PCs, 5G, IoT, autonomous vehicles, etc. It has also recently announced that it intends to have a GPU offering by 2020 (while the required talent is in place, whether it meets the timeline and is able to compete with AMD or NVIDIA at that time is of course unknown).

Fourth, Intel has made a number of acquisitions over the past few years, some of the most significant of which were Altera, Nervana, Movidius and Mobileye (OTC:MBBYF). While that’s a lot to integrate and assimilate, the acquisitions have opened up new opportunities for Intel.

Fifth, through all the uncertainties, Intel has grown revenue by an additional $15 billion and EPS by around 100% during his tenure. That was largely possible because the PC business continued to grow despite PCs themselves declining while the data center business also grew because of strong market drivers and the company’s leadership position. Intel’s share price has appreciated over 120%.

Sixth, Krzanich has been a champion of women’s rights and diversity, allotting $300 million a year to induce it within the company and tying it up with executive compensation to speed up the process. This has set it apart from several other technology companies that haven’t been as forthcoming, for whatever reason.

But he’s likely to be hard to replace.

Intel historically elevates people to leadership positions with the goal of maintaining continuity in company culture, but there’s very little choice left internally. So one option would be Murthy Renduchintala who joined the company some years back. Another would be Navin Shenoy, who has worked himself up the ranks. Or it could also be Aicha Evans, Intel's chief strategy officer or even Bob Swan.

Expert opinion is however in favor of fresh blood because of the new perspective that it is likely to bring and the fact that an outsider could perhaps be more realistic about Intel’s strengths, prospects and weaknesses and the need to trim some ambitions if required or spend more on certain other endeavors.

These outsiders could be some of the people that left Intel in the last few years or Sanjay Jha who left Globalfoundries in March, or Pat Gelsinger (Intel’s first CTO) who now runs VMware, or a host of other people. The search for a new CEO is on they say.

Conclusion

Intel has taken a lot of measures to reposition the company for the new era and it is in the middle of bringing these plans to fruition. Whoever fills the leadership role will have his work cut out: deliver on somebody else’s plans with the world looking over your shoulder. All I can say is good luck!

Intel shares carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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