Intel outside: CEO sacked as Gelsinger takes over

Intel sacks Bob Swan as CEO after investor discontent over failed acquisitions and lost customers, tapping Pat Gelsinger for the top job.

Pádraig Belton, Contributor, Light Reading

January 14, 2021

4 Min Read
Intel outside: CEO sacked as Gelsinger takes over

Intel has bowed to investor pressure and instigated a change of leadership, replacing Bob Swan with current VMware CEO Pat Gelsinger.

"Today's announcement is unrelated to Intel's 2020 financial performance," announced the company.

And just to hammer home the point, it added that it "expects to exceed" its guidance for fourth-quarter revenue and earnings per share, which it will release on January 21.

Which tells a part of the story, sure.

But that doesn't mean investors hadn't breathed heavily down the neck of the Santa Clara chipmaker until it swapped captain.

Swan, who leaves on February 15, is "a class act and did the right thing for all stake holders stepping aside for Gelsinger," tweets Daniel Loeb, founder of activist investor Third Point.

Naturally, it was Third Point that breathed heaviest.

In a firmly worded December letter, the New York-based fund told Intel it should "evaluate strategic alternatives," such as outsourcing its manufacturing, and getting rid of "certain failed acquisitions."

Intel customers including Apple, Microsoft and Amazon are "developing their own in-house silicon solutions and sending those designs to be manufactured in East Asia," Loeb wrote to Intel's board chair, Dr. Omar Ishrak.

So "you must be able to offer new independent solutions to retain those customers rather than have them send their manufacturing away," Loeb said.

"Just as Netflix uses Amazon's AWS for cloud services, Intel must figure out how to serve its competitors as customers," he added.

Problems on the chip farm

Intel lost its crown as America's most valuable chipmaker to Nvidia in July.

When Intel admitted then it was a year behind schedule in the process technology to manufacture its newest generation of chips, its shares tumbled 17%.

Swan was under heavy pressure to choose between making further investments to compete with TMSC and Samsung, or to outsource to them instead. Altogether, Intel lost $60 billion in its market capitalization, currently $233 billion, during 2020, though it still remains the world's 32nd biggest company, by market cap.

But by the fourth quarter, TSMC, with $565 billion, was number four.

M1, the highway to hell

Apple announced last year its new chip: the M1 (also, maybe ominously, the name of a famously slow UK motorway from London to Leeds).

And this eight-core microprocessor was a switch away from Intel to an Arm-based processor of its own design.

With Nvidia plucking up UK-based Arm for $40 billion in the September sales, it only added to the pressure on its Santa Clara neighbor, Intel.

Intel has struggled to get a 7nm chip process out (and probably now won't until 2023), and meanwhile its rivals AMD and Nvidia have eaten its lunch, growing their sales as Intel's slumped.

AWS and Google Cloud have decided to try making some of their own chips, to get power down and prices per CPU lower.

Intel's dire third-quarter results, where net income fell by 29% to $4.3 billion, only increased the pressure on Swan.

To its credit, this partly was lumpiness: Buyers found they had bought too many Intel chips in the first half, and dialed back in the second.

Pat's day

Gelsinger has headed cloud virtualization company VMware since 2012, during which time he has almost tripled its revenues.

Before that he was Intel's first chief technology officer, where he was architect of the 80486 processor, and worked heavily on development of the USB and Wi-Fi.

The call from Intel was in a sense delayed gratification: In 2012 he also had been tipped as in the running for Microsoft's top job.

Swan had only had keys to the CEO suite since June 2018.

He was promoted up from chief financial officer when Brian Krzanich had a "past consensual relationship" with an employee, Intel said before going on to note it planned to deliver "a record second quarter."

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— Padraig Belton, contributing editor, special to Light Reading

About the Author(s)

Pádraig Belton

Contributor, Light Reading

Contributor, Light Reading

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