Just over twenty years ago, Pat Gelsinger became
first-ever chief technology officer. The engineer earned the distinction after leading the design of the groundbreaking 486 computer processor and winning the respect of chief executive Andy Grove, who mentored him for years.
Gelsinger didn’t get Grove’s top job, though. After 30 years at Intel (ticker: INTC), he left in 2009. Now Gelsinger is back, with the CEO job he presumably wanted all along. He takes over for Bob Swan on Feb. 15.
Gelsinger has his work cut out for him. When Intel reports fourth-quarter earnings on Thursday, the chip giant is forecast to generate a massive annual profit of nearly $21 billion on sales of $75 billion. Analysts are forecasting declines in 2021, though. A series of manufacturing problems at Intel have allowed rivals
Advanced Micro Devices
(NVDA) to take share in key chip markets.
Intel stock slumped 17% in 2020, even as the benchmark PHLX Semiconductor index surged 51%.
In November, near the stock’s 2020 low, Barron’s argued that Intel still had plenty of value and could regain its mojo with fresh ideas and bold new management. Since our article, the stock is up nearly 30%, versus a 5% gain for the S&P 500 index. Intel shares have been boosted by a pressure campaign from activist investor Daniel Loeb, who demanded significant change from Intel’s board in late December.
Gelsinger’s appointment is a step in the right direction. His technical expertise is a clear contrast to the financial background that Swan brought to the job.
Dan Niles, a longtime chip investor and portfolio manager of the Satori Fund, says that Gelsinger’s appointment reminds him of Satya Nadella’s CEO promotion at
(MSFT). “My belief for tech companies—for any company—is that having someone from the DNA of the company is important,” Niles says. Since Nadella became CEO in 2014, Microsoft stock has returned 576%, compared with the S&P 500’s return of 149%.
At the same time, Gelsinger brings the benefits of an outsider. He spent three years as chief operating officer at EMC before becoming CEO of software pioneer
(VMW) in 2012. Understanding both software and hardware engineering has become critical for success in the chip industry.
Moor Insights & Strategy analyst Patrick Moorhead, who worked at AMD during Gelsinger’s Intel tenure, describes him as a hard competitor, a good executor, and someone capable of motivating people. “That’s what Intel needs,” he says.
Gelsinger’s most pressing matter will be tackling Intel’s manufacturing issues. For a company that has long insisted on doing things in-house, there is no easy fix. Atomic-level precision, huge capital costs, and competition for top talent make it a yearslong process.
When it comes to the most advanced chips, Intel is already far behind manufacturing powerhouse
Taiwan Semiconductor Manufacturing
(TSM), which builds chips for AMD and Nvidia, as well as
(AAPL). Gelsinger will have to decide whether to ease up on Intel’s all-encompassing approach to chips and outsource more work to a manufacturer like Taiwan Semi. That’s become Wall Street’s preference in recent months.
One of Swan’s significant final acts at Intel will likely be a manufacturing update during the company’s earnings call on Thursday. After that, Intel’s future is in Gelsinger’s hands. The good news for Intel investors is that he’s likely to be the best person for the job.
Write to Max A. Cherney at email@example.com