Nov. 19 (Bloomberg) -- Intel Corp. Chief Executive Officer Paul Otellini will retire in May, in a surprise move three years before mandatory retirement, after failing to equip the world’s largest semiconductor maker for a shift toward mobile devices and away from the personal computers it long dominated.
The board will consider internal and external candidates to replace him, Intel said today in a statement. The company has never chosen an outside CEO. It’s leaning toward executives from within, according to people familiar with the planning who asked not to be named because the search is private.
Under Otellini, 62, Intel has stumbled in the transition to mobile computing, managing to garner less than 1 percent of the market for chips for smartphones and tablets. Though the company extended its lead over Advanced Micro Devices Inc. in PC chips, the industry is shrinking as people do more computing on iPads and Android phones. The PC market this year will post its first annual decline in more than a decade.
“He’s been challenged by a tough PC market,” Richard Schafer, an analyst at Oppenheimer & Co., said in an interview. “You’ve got a company that’s heavily dependent on PCs, which is a vertical that’s in structural decline. Intel has yet to really establish a beachhead in mobile computing.”
When Otellini began his tenure as CEO in 2005, desktop and laptop machines powered by Intel’s chips set the standard for personal computing. More recently, smartphones and tablets have eclipsed the number of PCs being sold, crimping Intel’s revenue.
Under Intel bylaws, Otellini could have continued to serve as CEO until May 2016, when he would have reached the company’s mandatory retirement age.
Intel’s shares rose less than 1 percent to $20.25 at the close in New York, leaving the stock down 16 percent this year.
“The board accepted Paul’s decision with regret,” Paul Bergevin, vice president of communications at the Santa Clara, California-based company, said in an interview.
The company today promoted three senior leaders to the position of executive vice president: Stacy Smith, chief financial officer and director of corporate strategy; Brian Krzanich, chief operating officer; and Renee James, head of Intel’s software business.
In past successions, Intel has elevated the current COO to the top job. Both Otellini and his predecessor, Craig Barrett, stepped up from that position. Otellini, having served as technical assistant to former CEO Andy Grove, is also the product of Intel’s internal development program to groom future leaders.
“We have excellent internal candidates but will also look outside,” Chuck Mulloy, an Intel spokesman, said in an e-mailed 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,” Otellini said in the statement.
Krzanich, 52, was promoted to the COO role in January. He was head of the company’s manufacturing operations and now also leads human resources. He joined the company in 1982 after graduating from San Jose State University with a degree in chemistry. Smith, 50, has held positions in sales and marketing and finance and became assistant CFO in 2006. James, 48, would be Intel’s first female chief executive if she were chosen.
Intel should consider external candidates, including someone with experience changing course at a large company, said Doug Freedman, an analyst at RBC Capital Markets.
“If the board really wants a change, they’ve got to go and get a turnaround guy,” Freedman said. “That’s difficult for a company the size of Intel. You’d need someone from a big company.”
Freedman said that the board might look at Sanjay Jha, the former CEO of Motorola Mobility Holdings Inc., or executives from Qualcomm Inc. Jha also served as operating chief at San Diego-based Qualcomm. Of the internal candidates, he said “Stacy is the most focused of the three, but do you want a finance guy running a technology company?”
Otellini helped Intel rebound from a 42 percent drop in profit in 2006 as the company lost share in the server market to Advanced Micro Devices. He presided over record profit and sales for two years starting in 2010. Last month, slow factory output and rising stockpiles of unsold chips led the company to forecast fourth-quarter profit margins that fell short of analysts’s estimates.
The total PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS iSuppli. That’s the first annual decline since 2001, the market researcher said.
Intel’s biggest customers are PC makers Hewlett-Packard Co and Dell Inc., according to a Bloomberg supply-chain analysis.
Qualcomm, the world’s largest maker of chips for phones, surpassed Intel in market value for the first time earlier this month and is predicting double-digit earnings growth for the next five years.
Some 711.4 million smartphones will be sold this year, a gain of 44 percent, Canaccord Genuity Inc. analysts projected in a report. The market will grow 35.4 percent next year, the analysts estimated.
Like his predecessors, Otellini failed to parlay Intel’s position in computers, where it has more than 80 percent of the market for processors, to a stake in the more rapidly growing market for phones.
This year the company announced its first customers in phones, including Google Inc.’s Motorola unit. As yet, the company has less than 1 percent of that market, according to research firm Forward Concepts Co.
“Paul Otellini has been a very strong leader, only the fifth CEO in the company’s great 45-year history, and one who has managed the company through challenging times and market transitions,”Andy Bryant, Intel’s chairman, said in the statement.
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