Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Intel’s Otellini Says Company Will Probably Tap Insider to Succeed Him

If you had any lingering hopes that the next CEO of chipmaker Intel might come not from within the company’s ranks but from the outside, they’ve effectively been shot down about as completely as possible from a pretty unimpeachable source: Intel CEO Paul Otellini himself.

Speaking at a Sanford Bernstein conference yesterday covered by Bloomberg News, Otellini said that Intel’s board of directors will likely select an internal candidate to succeed him when he retires next year and not an external one. When Otellini’s decision to retire was announced last month, a lot of attention was paid to the fact that Intel said it would break with tradition and consider external candidates in addition to the internal ones already in the running. Trouble is, there aren’t many available executives who fit the bill.

Intel Chairman Andy Bryant more or less made it clear in comments to the New York Times that the “external candidate” language in the press release issued that day had more to do with covering the Intel board’s backside from a corporate governance point of view than anything else.

“It’s not up to me, but I think that’s the most likely outcome,” Otellini said at the conference, adding that he’s “very comfortable” with the internal people vying for the job.

If you’re not up to speed on who those candidates are, then you should go read this post from last month listing who’s who and why they’re in the running.

The smart money says the race will come down to COO Brian Krzanich and CFO Stacy Smith, with software chief Renée James representing the dark horse who would get the nod if Intel’s board decides to vary pretty substantially from its script.

The thing is, it won’t. Intel needs some radically new thinking in order to rise to the challenges facing it in the smartphone and tablet space. Having essentially conquered the first wave of the digital world by stomping all over every other challenger in the PC and server industry with its chips, churned out by its world-beating manufacturing expertise, it entered a new decade looking flat-footed in the face of its first existential threat in a generation: ARM.

There are now PCs running a variant of Windows with ARM-based chips inside them from vendors like Nvidia and Qualcomm. And while it’s still early to say, the perception in the marketplace is that these devices, not those with Intel chips inside them, have the momentum of the moment. Even Apple, Intel’s showpiece customer on the PC, is said to be close — and by close I mean arguably within a few years — of switching away from Intel chips to its own internally designed ARM-based chips on the Mac.

That leaves Intel with two strongholds: One vulnerable, one seemingly unassailable. The vulnerable one is the server space. The movements by many chip companies to harness new ARM-based designs to attack Intel’s dominance there will, I think, emerge as an important story in 2013.

The unassailable one is Intel’s manufacturing prowess. There is not a single entity on the planet that knows more about manufacturing chips, nor anyone that can do it anywhere near as well as Intel. In time, this fact will force Intel to become more of a foundry company than it has been before.

Consider some other comments that Otellini made at the Bernstein conference yesterday, as reported by Barron’s. Asked about the possibility of becoming a foundry — that is, a company that manufactures chips on contract for companies that don’t have their own chip factories — Otellini said:

We’re running a small foundry business. We are building up our capabilities. We don’t want to compete with Taiwan Semiconductor Manufacturing. But for the right types of products, and not to enable my competitors, I would certainly consider it. There’s a lot of stuff in the pipeline. … I think it makes sense for us to have that kind of capability, particularly as our semiconductor lead gets wider over the rest of the industry.

Which brings me back to the dark-horse candidacy of Renée James to be Intel’s next CEO. A lot of the value that goes into chips is now coming from software. Chips are made to be computing engines, but they’re also programmable, and a lot of secret sauce that gets put into them comes not only from hardware but from software. Intel is still a manufacturing company, but it is also a software company and employs legions of software engineers — including but not limited to the McAfee security software division it acquired in 2010. Software will increasingly become as important a strategic advantage in the manufacturing and customization of chips as the technology itself. Why not put a software executive in charge?

Also, if there were ever a moment to go off the script that Intel has followed since the days of Andy Grove — wherein every CEO has served first as COO — and shake tradition just a bit, it might be now. Just a thought.

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Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work