Intel CEO Resigns: What Investors Need to Know

On June 21, chip giant Intel (NASDAQ: INTC) announced that Brian Krzanich, who was appointed the chief executive officer of the company in May 2013, had resigned, effective immediately. The resignation, Intel says, came after the company had discovered that Krzanich had a “consensual relationship” with an employee who reported to him, violating the company’s code of conduct for managers.

While the company conducts what it referred to as a “robust search” for Krzanich’s replacement, current chief financial officer, Bob Swan, will serve as Intel’s interim CEO.

“Bob has been instrumental to the development and execution of Intel’s strategy, and we know the company will continue to smoothly execute,” Intel Chairman Andy Bryant said in the press release announcing Krzanich’s departure.

Alongside this announcement, Intel also revealed that its second-quarter results came in much better than expected, with revenue of $16.9 billion and earnings per share of $0.99. Intel had previously forecast revenue of $16.3 billion and earnings per share of $0.85.

Here’s why I think Krzanich’s stepping down is the best news Intel stockholders could’ve possibly hoped to get.

Image source: Intel.

An opportunity for a much better leader

It’s no secret that I don’t think highly of the job Krzanich did running Intel. For more than two years, I’ve been calling for him to be replaced. Under him, Intel’s multiyear edge in chip manufacturing evaporated, and now it looks like Intel is actually behind the competition by anywhere from one to two years.

Intel’s manufacturing stumbles could lead to a dramatic decline in Intel’s competitiveness across the board, posing a risk to both the company’s revenue growth trajectory as well as its profitability. Moreover, I strongly objected to Krzanich’s messaging around Intel’s chip manufacturing position, which came off as ill-informed at best, and downright misleading at worst.

Although seeing its manufacturing edge turn into a disadvantage over Krzanich’s tenure would be reason alone for Intel to look for new leadership, Krzanich’s poor decision-making didn’t end with a loss of the company’s manufacturing excellence.

Krzanich, for example, led the company’s expensive push into the smartphone and tablet applications processor markets, leading to billions of dollars in realized losses before the company decided to finally call it quits. After killing Intel’s organic mobile chip development efforts, Intel invested in mobile chip maker Spreadtrum to try to get a cut of the mobile processor market, but that ultimately hasn’t yielded much.

Although Krzanich did make some reasonable moves, like doubling down on the non-volatile memory market and more aggressively pushing into the Internet of Things market, those businesses are effectively side shows compared to its core PC and data center processor businesses — businesses that are now at risk thanks to Intel’s manufacturing stumbles.

Ultimately, Krzanich was a poor leader — easily the worst Intel’s ever had — and I think Intel will benefit from having a new, presumably more capable leader at the helm.

What a new leader can do

One of the nice things about Intel getting a new CEO, irrespective of whether it’s an internal promotion or an external hire, is that virtually all of Intel’s problems can now be attributed to the previous CEO’s decision-making. This should give Intel’s new CEO the flexibility to look at the situation with a fresh pair of eyes and make significant changes that Krzanich may not have been willing to do (lest it appear he was admitting defeat).

I don’t think it’ll be tough to find an executive who can make better use of Intel’s vast financial, technical, and human resources than Krzanich was able to.

Unfortunately, a CEO change isn’t going to lead to changes in Intel’s products or near-term prospects since developing new chip products takes years. The good news, though, is that once Intel weathers the proverbial storm that it might soon face as a result of Krzanich’s decision-making, the company could emerge stronger and more competitive.

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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