Intel to Manufacture Its Own Destiny?
On Thursday, Intel announced that it has chosen a successor to take the reins from Paul Otellini, who announced his intention to retire six months ago. Taking his place is former COO Brian Krzanich, who will take over at Intel's annual stockholders' meeting on May 16. But many are asking “Who is Krzanich, and where will he be taking the semiconductor giant?
The new CEO has made Intel his home for over three decades, having joined the company in 1982 as a process engineer. From there, he gradually ascended the ranks of Intel's manufacturing divisions until he took over as COO in January 2012.
Intel has been long-regarded as the company to watch if you want an indication of the sector's health as a whole, but in light of the 2008 recession and changing winds in the computing industry, it isn't the powerhouse it once was. Its profits dropped significantly in the fourth quarter of 2012, and although it seemed to have recovered in this year's first quarter, its sales were well below what was forecast.
Unfortunately for Intel, these hard challenges aren't likely to evaporate as the economy recovers. Personal computers are being abandoned for the compact tablets and smartphones that can just as easily meet most consumers' needs. Because Intel gets most of its revenue from selling chips for these types of machines, this trend has already caused some trouble. PC sales fell 14 percent between January and March of this year—the largest drop in almost two decades.
The company has recently come face to face with ARM, whose chips provide greater power efficiency and long battery life for mobile devices while also gaining more traction for notebooks and servers. Intel is hoping to break into the mobile space, but with companies like NVIDIA and Qualcomm crowding that market, Intel has been hard-pressed to turn computer know-how into mobile success.
But what Intel holds above other chipmakers is its manufacturing technology. What the company is counting on is that those technologies will help to make its chips more advanced and more power efficient than its competitors, leaving smartphone and tablet makers no other choice but to turn to Intel.
Some even speculate that Intel is looking to use its factories to make chips for other companies like Apple. Already the company has brokered deals to make chips for Tabula, Netronome, Achronix, Altera and Microsemi in the last two years alone.
And according to some, Krzanich's election as CEO suggests Intel will continue to look to its manufacturing assets to stay afloat as it steers into the mobile computing market. Whereas Otellini was criticized for lacking an engineering background, Krzanich offers his experience as the general manager of both Intel's manufacturing and supply chain as well as its assembly and test division.
From a business standpoint, analysts seem to be in agreement that this means a continued (if not renewed) focus on manufacturing as the foundation of Intel's business model.
“Hard to say we're surprised,” said analysts at BMO Capital Markets in a note to their clients. “To us, it is in line with Intel's belief that its manufacturing and process technology prowess will pave the way for success in the new world order.”
And BMO Capital Markets was not alone. Tech analyst Jack Gold added that Krzanich's background should incline him to keep expenses down and “limit the amount of infighting in the various business units that caused Intel in the past to move less aggressively into certain areas.”
However, Krzanich's election wasn't the only one that could indicate Intel's trajectory. Renee James was also elected president of the company, and many expect that her expertise in software suggests that the board wants Intel to have a much broader approach to the computer industry.
And with Intel's promise to release an internet-based TV service complete with hardware by the end of this year, this may mean that mobile isn't the only other area that the company could grow into. Already consumers are ditching cable services in favor of internet-based streaming offerings like Netflix or Hulu Plus. If Intel manages to jump into this industry, it's personal computing woes might become a thing of the past.