Jan. 23 (Bloomberg) -- Intel Corp., the world’s biggest chipmaker, named Jane Shaw to succeed Craig Barrett as chairman, breaking with tradition by appointing someone from outside the executive ranks.

Barrett, a 6-foot-3 engineer who is best known for overhauling and standardizing Intel’s manufacturing plants as chief executive officer, will leave after the annual shareholder meeting in May, the Santa Clara, California-based company said today. Shaw has served on the board since 1993.

In the past two successions, Intel has given the chairman role to a former or current CEO. Barrett, 69, became chairman in May 2005 after passing the CEO role to Paul Otellini. The appointment of an outsider reflects a broader shift to making boards more independent.

“It’s good to have a separate CEO and chairman,” said Brian Piccioni, an analyst with BMO Capital Markets in Toronto. He advises investors to buy Intel’s shares, which he doesn’t own personally. “There should be some level of tension between the two roles.”

Barrett was the first person to lead Intel other than its original founders, Robert Noyce, Gordon Moore and Andy Grove. His wife, Barbara, was second in command at the Federal Aviation Administration under President Ronald Reagan. They own a ranch in Montana.

Andy Grove

Before Barrett became CEO, Grove was both chief and chairman. Grove became chairman alone after Barrett took the CEO job in 1998.

“We periodically review the makeup of the board, and it was decided at this time that Dr. Shaw would be more appropriate as chair,” Intel spokesman Chuck Mulloy said in an interview.

Barrett stepped down as CEO after reaching Intel’s mandatory retirement age of 65. While chief, Barrett boosted productivity by making sure every factory was identical, with the same machines.

“His legacy has been turning Intel into a manufacturing powerhouse,” said Uche Orji, an analyst with UBS Securities LLC, who advises buying the stock. “It became more reliable and the concept of reliability in manufacturing is now taken for granted, but in the ‘70s and ‘80s it wasn’t.”

Outsiders can help bring needed changes to a company, said David Wu, an analyst a Global Crown Capital in San Francisco.

“This is unusual for Intel, but that doesn’t mean it’s not right,” Wu said. “A chairman of the board should be, theoretically, using best practice, not from the same company.”

Pharmaceuticals Background

Shaw, 69, has headed Intel’s compensation and audit committees, and is currently lead outside director. She was chairwoman and CEO of AeroGen Inc., a maker of drug-delivery systems, until it was acquired by Nektar Therapeutics in 2005. She previously was chairman of Intrabiotics Pharmaceuticals from 1996 to 2000. She currently sits on the boards of Talima Therapeutics Inc. and McKesson Corp.

Intel rose 30 cents to $13.12 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares lost 45 percent in 2008.

After becoming CEO, Barrett moved Intel into new markets, such as consumer electronics and the hosting of business Web sites. After the dot-com bust in 2000, he shut some of those businesses and refocused on chips.

He wasn’t afraid of making dramatic gestures. In October 2004, Barrett walked onto a stage during a industry conference in Florida, got down on his knees in front of more than 6,000 technology executives, and begged forgiveness for overestimating chip demand.

Intel said this week that it will close five factories that employ as many as 6,000 people, including its last plant in Silicon Valley. A reduction in demand for PC chips has forced Intel to run operations below capacity. Last week, Intel reported a 90 percent drop in fourth-quarter net income.

To contact the reporter on this story: Rochelle Garner in San Francisco at rgarner4@bloomberg.net.

Last Updated: January 23, 2009 16:21 EST