Intel CEO surprises by announcing his departure

Intel Corp. CEO Paul Otellini will step down from the company in May, a surprising and sudden decision announced Monday that sets off a six-month search for the new head of the world’s biggest chipmaker.

“I’ve been privileged to lead one of the world’s greatest companies,” Otellini said in a statement.

“After almost four decades with the company and eight years as CEO, it’s time to move on and transfer Intel’s helm to a new generation of leadership. I look forward to working with Andy, the board and the management team during the six-month transition period, and to being available as an advisor to management after retiring as CEO.”

Otellini became CEO in the second quarter of 2005.

“I thought today was going to be a quiet [news] day,” said Nathan Brookwood, California-based microprocessor industry analyst who heads Insight 64, who like everyone else was caught off guard by the announcement.

Like others, Brookwood said Otellini has had an undeniably successful reign, helped by accelerating sales of desktops, laptops and servers. During his term as CEO Intel’s annual revenue grew from $38.8 billion to $54 billion (all figures U.S.), while annual earnings-per-share grew from $1.40 to $2.39.

During his tenure, a news release touted, Intel has generated cash from operations of $107 billion (all figures U.S.), made $23.5 billion in dividend payments and increased the quarterly dividend 181 percent.

Brookwood said that when Otellini took over Intel was in disarray from acquisitions made by former CEO Craig Barrett, who tried pushing the company into making chips for networking equipment. Otellini ended up selling those divisions, Brookwood said.

Intel was also seeing pressure from AMD, which was taking market share in desktop PCs and servers.

Today, Brookwood said, Intel runs like a “well-oiled machine” that predictably updates its CPUs once a year and has “thoroughly repelled” any challenge from AMD.

Yet there were two notable disappointments: Intel CPUs are largely absent from two of the fastest-growing mobile device segments – smart phones and tablets.

So far those devices are dominated by chips made around designs from Britain’s ARM Holdings and its partners like Nvidea Corp. and Samsung Electronics.

Intel is trying to get its Atom processors into those devices and has scored some wins. This month it said an Atom chip will power Motorola’s MT788 smart phone for China Mobile.

In January, Intel processors will be in new Microsoft Surface tablets running the full Windows Pro 8 operating system.

But Brookwood wonders if the company’s board has told Otellini he hasn’t moved fast enough in these two areas.

Why else, the analyst wonders, would Intel do two things it has never done before: Announce a CEO is departing without naming a replacement, and say it is willing to look at candidates from outside the company.

Dean McCarron, principal at microprocessor analyst firm Mercury Research, also agreed there’s been a “slowness” in responding to ARM.

He also said that Intel has fallen short in its goal of pushing big sales of Intel-based Ultrabooks, lightweight, thin laptops akin to Apple Inc.’s MacBook Air.

But, he said, under Otellini’s reign the company accelerated a switch to making CPUs for laptops and netbooks and away from desktop PCs.

Now about $4.5 billion of the company’s quarterly revenue – about half — comes from mobile processors, he said.

Intel’s domination of the PC and server market is supreme: It holds 95 per cent of the x86 server market, 85 per cent of the laptop market and slightly less than 80 per cent of the desktop market, McCarron said.

He also credits Otellini for continuing to hone Intel’s manufacturing processes, most recently seen in the making of 3D transistors.

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