Intel CEO’s Exit is a Surprise to Everyone

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Shares of Intel (NASDAQ:INTC) were temporarily halted on Monday when news broke that CEO Paul Otellini will step down in May. Mr. Otellini’s decision came as a surprise to both the company’s board and investors, likely prompting the trading halt to prevent any panic-selling. Volume was high after trading resumed and shares remained stable, climbing a fraction of a percent after an initial drop in morning trading.

Mr. Otellini’s decision comes at a difficult time for Intel. Shares have lost over 18 percent of their value this year to date in the face of slumping PC demand and a weak global economy. Traditional revenue streams and partnerships are evaporating in the face of a changing tech landscape, and the company’s semiconductor offerings will have to change with it.

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One example of the difficulties the next CEO will have to face is the potential loss of major customers. Intel has provided chips for Apple’s (NASDAQ:AAPL) Mac personal computers since 2005, but there has been speculation that the partnership may be coming to a close. Apple may decide to replace Intel chips with a beefier version of the chip it currently uses in the iPhone and iPad, a development that would benefit ARM Holdings (NASDAQ:ARMH), a chip designer that designs mobile processors licensed by companies like Qualcomm (NASDAQ:QCOM). The smaller, less power-hungry processors necessary for mobile devices typically fall outside of Intel’s area of expertise, and it will take some time to come up to speed.

For its part, Qualcomm has been a component in Intel’s recent decline. Qualcomm specializes in telecommunications products and has capitalized on explosive smartphone sales growth. While Intel has recognized that this is an area it needs to grow into, its presence is still weak.

Intel’s third-quarter earnings demonstrated exactly how vulnerable its position as a market leader is. The company focused for years on personal computing chips, and a global decline in PC sales helped drive revenue for the quarter down 5.5 percent and earnings down 14 percent.

However, the company’s performance over the last year does not reflect Otellini’s historically strong record. In the company’s press release announcing his decision to step down, Andy Bryant, chairman of the board, comments that he “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.”

Under Otellini’s leadership, Intel grew annual revenue from $38.8 billion to $54 billion, and grew annual EPS from $1.40 to $2.39.

Renee James, head of Intel’s software business, Brian Krzanich, COO, and Stacy Smith, CFO, have all been promoted to executive vice president for consideration as possible replacements. Breaking tradition, the company will also consider external candidates for the position.

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