Intel CEO Wanted. Must Love a Challenge.
(Bloomberg Opinion) -- The good news for Intel Corp.’s next chief executive officer is the company is flying high. That’s also the bad news.
Intel is set to report fourth-quarter results on Thursday afternoon, closing the books on a remarkably healthy 2018 — which is notable, considering a caretaker CEO has been in place since June. Former CEO Brian Krzanich lost his job after Intel’s board found out he had an affair with an employee, in violation of company policy.
After scaling a new financial peak, there may be nowhere for Intel to go but down, given a host of geopolitical, industry-wide and company-specific challenges. Among other things, the new CEO will have to tackle existential problems that Krzanich couldn’t or didn’t fix, including cracks in Intel’s chip-production capabilities and how to branch beyond strongholds in personal-computer and server chips. It’s what makes running the company both one of the most important jobs in technology, and one of the toughest.
This week, at least, Intel can take a victory lap. The company is expected to report an 11.5 percent jump in quarterly revenue, and to forecast an 8 percent expansion for the three months ending in March, according to estimates compiled by Bloomberg. Intel’s stock price has outperformed the S&P 500 Index in the last year.
It’s clear, though, that Intel benefited from temporary conditions. A shortage of PC microprocessors and a surge of business PC purchases perked up its bottom line last year. Those factors won’t last, nor will internet and cloud giants continue to splurge as they have in recent years on expanding their data centers. That all meant a sales pickup for Intel, which generates 85 percent of its revenue, and an even larger share of its profit, from PCs and servers.
The next boss will have to decide what to do about this concentration. Intel’s answer has been to try expanding into wireless technology, electronic brains for cars, memory chips and other categories. But the company may not have the right assets or capabilities in those areas, and the new businesses might not be as profitable as the company expects.
The next CEO will have to make a tough call on whether to double down, or give up on some of these efforts. The choice will be second-guessed inside and outside the company.
And perhaps the trickiest challenge is Intel’s struggles to reach a new milestone in chip manufacturing. Production hiccups have created opportunities for other companies to pick away at Intel’s dominance. Even sales on the margins by rivals such as AMD might hurt Intel’s most profitable business. And it’s a psychic blow that Intel is no longer able to turn out the smallest and most efficient computer chips in the world. Slowing economies and pressure on trade also threaten one of the most globally intricate industries in the world.
Still, Intel is healthy and generating gobs of cash. The set-up for the next CEO isn’t unlike the situation Satya Nadella stepped into when he took over Microsoft Corp. in 2014. The software giant also faced serious strategy challenges but was financially strong. That gave Nadella breathing room to bet big on future technology, and things have gone well.
The comparison to Nadella falls apart in at least one important way, though. Nadella worked at Microsoft for more than 20 years before he became CEO. At Intel, there are few obvious internal candidates to take over for Krzanich, as Bloomberg News reporter Ian King has written. This is a stunning development for a company that’s been scrupulous about developing executives from within.
Intel is no stranger to doubts, and it has found ways to survive and thrive so far. This time does feel different. In areas like its chip factories, root problems have persisted for years, to the point where they’re now too big to ignore. The new CEO should be someone who enjoys a challenge.
A version of this column originally appeared in Bloomberg’s Fully Charged technology newsletter. You can sign up here.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.
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