Intel is not Inside

Intel is not Inside Anymore

The company powering every computer in the world has hit a rough patch. Founded 52 years ago in Silicon Valley, Intel revolutionized the semiconductor industry as we know it. Co-founder Gordon Moore came up with Moore’s law, where he predicted transistors would double every year. Making technology obsolete overnight.

Seems like time finally caught up with Intel.

The Changing of Executive Guards

CEOs have a short yet powerful tenure. Most of them have a ~6 year window to make a change. Then they begin working on succession planning. Some CEOs aren’t even that lucky.

Intel’s current CEO, Bob Swan, will step down next month. VMware’s current CEO Pat Gelsinger will be taking over Intel. The abrupt but swift change is necessary. Bob doesn’t have a technical background and couldn’t maintain Intel’s lead in the chip industry. Gelsinger has an engineering background and will help the company regain its footing in research & development.

Why is this important?

Competitors AMD and Apple have been building new chips, gaining market share against Intel. As hardware transitions from laptop to mobile, chip manufacturers need to keep up with the times. Nvidia is a good example of one tech company that has maintained leadership in a competing industry by capitalizing on artificial intelligence with its graphics cards.

This CEO announcement is unrelated to Intel’s financial performance. Gelsinger is making a full circle having begun his career at Intel. But his experience has strayed away from hardware technologies. VMware is a major cloud provider focused on virtualization. Gelsinger will bring a much needed fresh set of eyes back to Intel.

Activism sparked the revolution inside

The abrupt change in leadership comes at a good time. Dan Loeb’s Third Point published a friendly activist letter to explore new options at Intel. Loeb specializes in underperforming companies that have lagged behind the public markets. And Intel was at the top of his list.

The board needed a wake up call

Dan’s hedge fund built a $1 billion position in the company so their voice would be heard. Dan told the board to boost the company’s position as a major provider of processor chips for PCs and data centers. He emphasized the need for America to maintain leadership in the semiconductor industry.

Intels' most urgent task addressing its "human capital management," as many of its talented chip designers have fled.

Five ways to improve Intel from the Inside

Intel Responded welcoming all investor opinions, including Third Point. This was a great starting position as some activist letters can be seen as friendly fire. Loeb has been aggressive in the past but it seems the board is open to his points below

  1. Intel should consider selling its manufacturing operations and “failed acquisitions” to address what Loeb considers “substantial problems.”
  2. Intel Has ‘Underperformed’ Due To Manufacturing Issues
  3. With Intel falling behind TSMC and Samsung in manufacturing, it has allowed fabless semiconductor companies AMD and Nvidia to “gain significant market share at Intel’s expense,”
  4. Intel’s ‘Loss Of Manufacturing Leadership’ has become a National Security issue
  5. Intel has a “human capital management problem” and criticized the company for losing “many of its most inspiring and talented chip designers and leaders.”

Only the Paranoid Survive

Andy Grove was the third employee and most notable CEO of Intel. His influence in the  semiconductors industry has been replicated across the globe. In fact, Andy is considered the ‘father of OKRs’ as mentioned in John Doerr’s book, Measure What Matters.

Andy also wrote several books on management as well. Two of his books I love to recommend are High Output Management and Only the Paranoid Survive. Both business books provide a deep dive into Andy's leadership principles. They can be summed up with one word: managing.

You'll find Andy's books on the shelves of investors and managers in other Industries too. His techniques are universal and still taught decades later. In fact, Ben Horowitz from venture capital firm, a16z, wrote his best selling books, The Hard Thing about Hard Things and What You Do Is Who You Are, both after Andy’s management techniques.

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