Bloomberg News

Intel CEO-Designate Krzanich Plans Faster Shift to Mobile

May 03, 2013

Intel CEO-Designate Krzanich Plans Faster Shift to Mobile Chips

Krzanich, 52, takes the helm as Intel struggles to cut into Qualcomm Inc.’s lead in the $85.4 billion mobile-chip market. By Photographer: Noah Berger/Bloomberg

Brian Krzanich, Intel Corp. (INTC:US)’s next chief executive officer, said he’s already sold the company’s board on a plan to move more quickly into mobile-device chips.

His bigger challenge: persuading investors and customers that he can do a better job than his predecessor, Paul Otellini, in adapting to the shift in consumer tastes away from the personal-computer market his company dominates -- and toward tablets and smartphones.

“You’ll see actions over the next couple of months that will start to unfold what that strategy is,” said Krzanich, who becomes Intel’s sixth CEO on May 16. He said he’ll outline his plans with staff soon, and the public after that.

Krzanich, 52, takes the helm as Intel struggles to cut into Qualcomm Inc. (QCOM:US)’s lead in the $85.4 billion mobile-chip market. By hewing to a long-held strategy of elevating CEOs from within, Intel’s board backed a veteran who’s steeped in company culture and well versed in chip production. The move also leaves Intel without a leader adept at wooing phone and tablet makers.

“It’s a new kind of task, and he’s an old kind of veteran at Intel,” said Alex Gauna, an analyst at JMP Securities in San Francisco, who has a market perform rating on Intel shares. “It’s a new battle, a new game, and we’ll have to see whether Brian can adjust his game to the new rules.”

Intel shares rose 0.5 percent to $24.11 yesterday in New York. While the stock has gained 17 percent this year, it has dropped 6.2 percent since Otellini took over in May 2005.

Servers, PCs

Founded in 1968, Intel has mastered a strategy of using cutting-edge facilities to manufacture chips that are faster and more powerful than those of rivals. The company has tended to devote the most advanced plants and equipment to semiconductors for servers and personal computers -- not mobile devices, said Doug Freedman, an analyst at RBC Capital Markets. A change in tack may not happen until next year, Freedman said.

“Intel’s still not putting their best foot forward in mobile,” said Freedman, who’s based in San Francisco and has a sector perform rating on the stock.

Intel, based in Santa Clara, California, has spent more than a decade and billions of dollars trying to gain a foothold in smartphones, yet chips made using technology from ARM Holdings Plc (ARM) still account for more than 95 percent of that market. Qualcomm is the leader in semiconductors for handheld devices. Intel ended last year with less than 1 percent of the market for phone microprocessors.

‘Faster Pace’

Krzanich, who was promoted to chief operating officer in January 2012, said in an interview that the shift toward mobile will happen more swiftly on his watch.

“We see that the world is becoming more mobile,” Krzanich said. “We see that the growth is moving towards those areas, and we believe we have the right assets, right product capabilities to go into those at a much, much faster rate.”

Krzanich has typically limited appearances to Intel’s technical or manufacturing announcements, giving analysts and investors little insight into how he’ll perform in the more public role of CEO. Still, he acquitted himself well during a private dinner with investors in January, said Patrick Wang, an analyst at Evercore Partners Inc. (EVR:US) who hosted the affair.

“He had answers for everything, he was thoughtful, he’s been at Intel forever, and he really had an independent view on things,” Wang said. “All night we were poking him with different strategic-type questions, and we thought he did a great job representing the company.”

Engineer at Helm

Krzanich’s elevation returns an engineer to the top job at Intel, which was founded by Gordon Moore and Robert Noyce. It was run by Andy Grove and then Craig Barrett, who have advanced science degrees. Otellini has degrees in economics and business.

When Intel announced Otellini’s planned departure in November, it named three executive vice presidents: Krzanich, Stacy Smith and Renee James, marking them as the primary candidates to lead the 44-year-old company.

Known as “BK” because of the difficulties some colleagues have in pronouncing his surname (kris-ANN-itch), Krzanich began as a factory manager and worked his way through the ranks, honing his understanding of how plants work.

He has a reputation for pushing his engineers hard, according to people who have worked with him. Yet, he eschews the hard-nosed tactics favored by some of his peers in the tradition of former CEO Andy Grove, who introduced the term “constructive confrontation” into the Intel lexicon, said the people, who asked not to be identified because they’re not authorized to discuss his management style publicly.

Questioning Assumptions

The executive instead prefers to question meeting attendees, challenging underlying assumptions and repeatedly asking why things cannot be changed, the people said.

While Intel’s manufacturing prowess helped it carve out leadership in chips for PCs and servers, the approach hasn’t helped it make a stand in mobile phones and tablets. The PC market declined 3.7 percent last year, its first drop in a decade, and is on course to contract again this year after shrinking 14 percent in the first quarter, according to market researcher IDC. By comparison, tablet shipments climbed 78 percent in 2012, and smartphone unit sales jumped 46 percent, IDC said.

Still, Krzanich’s background refining production technology could help Intel finally mount a serious challenge to the likes of Qualcomm and Samsung Electronics Co., said Wang at Evercore.

Krzanich earned a bachelor’s degree in chemistry from San Jose State University and holds a patent for semiconductor processing. He joined Intel in 1982 in New Mexico as an engineer, just as the personal-computer industry was beginning to take off.

A father of two who runs to keep fit, Krzanich has worked at most of the company’s major sites in the U.S., including New Mexico and Chandler, Arizona, where, like many employees, he attended meetings in shorts.

He’s also given analysts the impression that he’s less concerned about ego than achieving results, said RBC’s Freedman.

“He does not care about status or image,” he said. “He’s very much concerned about just getting the job done.”

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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Companies Mentioned

  • INTC
    (Intel Corp)
    • $34.95 USD
    • -0.04
    • -0.1%
  • QCOM
    (QUALCOMM Inc)
    • $76.25 USD
    • 0.42
    • 0.55%
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