I spend much of my time covering CEOs. While the compensation is often spectacular, the job is a life and family killer and I’ve seen more people worse for the job then better for it.
More important, given there is little in the way of formal training, the odds of failure are unusually high. Often when a board is trying to fix an endemic problem their first decision is to replace the CEO.
However, if the CEO has been there for a while, often they are actually the best choice for the job. The problem? The CEO is either crippled by an-inflexible culture, lack of critical intelligence, and/or a poorly balanced executive team.
If you can fix these then even if you replace the CEO you’ll likely get a successful turnaround, if you don’t, even the best new CEO will likely fail. I get to see a lot of the Intel founders on a regular basis, and I’ve followed the company closely for several decades and my wife is ex-Intel. The one constant when we discuss Intel’s issues? The core problem that makes Santa Clara unable to rapidly address the mobile threat is deeply ensconced in Intel’s culture. If that is the problem, then replacing Intel’s CEO without side talent not only won’t fix what is broken, it likely will break what is actually working.
The PC market is going through a change and I think most are so focused on the damn trees they are missing the forest. PCs aren’t being replaced by alien devices, rather, they are evolving into devices that are smaller, portable, and increasingly pull their performance from servers. Meaning, the load and the value is moving from the client to the server. If that is correct then Intel, which is a high value vendor, should be moving where the value is going and not chasing the client device which is rapidly becoming the equivalent of a pretty set top box. Only Apple is able to sell product at premium prices and their financial results suggest that even they are having trouble selling at the premium a vendor like Intel requires.
So if the board pulls Paul Otellini and replaces him with someone that blows up Intel’s culture and focuses the company on clients that are rapidly dropping in price, it will pull resources off their advanced server effort. So even if they are able to take back client share, Intel will bleed margins.
Intel’s SDN and NFV Announcement
This last week Intel, along with a host of partners, announced a massive Software Defined Network and Network Function Virtualization initiative. This was on top of the Moonshot announcement with HP and combined showcased an impressive move to where the margins not only still are but are likely to remain through this Cloud services heavy cycle.
In short, under Otellini’s guidance Intel is executing very well where the margins are likely to remain stable and in Intel’s traditional range and where he isn’t executing well is in business areas that should increasingly unattractive to the company. Now clearly the ARM vendors will and are moving against this opportunity as well, but because these back-end products are high value offerings Intel can afford to defend this turf much more aggressively and performance will continue to drive value. More important, Intel’s networking efforts mirror their past success in mid-range servers and these are battles the corporation is better suited to fight.
Wrapping Up: I Think Intel’s Board is Repeating HP’s Mistake
Recall that HP’s board back in the late 1990s had similar concerns and they replaced their handpicked CEO who was struggling with HP’s culture with Carly Fiorina who was hired to shake the company up. She did that and envisioned a future all the way up to the coming smart watches which actually largely happened. Only problem? The HP board didn’t assure she could or world complete the job. So as smart watches come to market, HP will be playing catch up again, instead of being ahead of the game. Simply put, this is because the core problem making HP’s CEOs ineffective wasn’t fixed, and the CEO change put HP in a spiral, cycling the board several times in the process - a future that Intel may well now share.
Perhaps rather than getting rid of Paul the board should instead appreciate him for the right moves he is making and rethink their need to be on every client, even those with unattractive processor margins. Intel’s board may need to consider that the best new CEO for Intel is the old one and that they may instead want to chat with Pat Gelsinger over at VMware to ascertain what really needs fixing.