Intel Corp (INTC)

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Intel: VMW’s Gelsinger or Moto’s Jha Would be Decent CEO Picks, Says Argus
By Tiernan Ray

Reflecting on the retirement next May of Intel (INTC) CEO Paul Otellini, Argus Research’s Jim Kelleher this morning reiterates a Buy rating on the shares, while cutting his price target to $25 from $30, writing that among the many potential candidates to replace Otellini, both inside and outside the company, he thinks former Intel VP Pat Gelsinger, age 51, now CEO of VMWare (VMW), has the kind of data center expertise that Intel might need.

Kelleher’s lower price target follows a cut in projected EPS this year to $2.21 from $2.26, reflecting what he describes as “the slow Ultrabook adoption,” referring to the slim, sleek notebook computers that Intel has been pushing with partners.

“We believe that Intel will require or at least prefer an individual with CEO experience; familiarity with Intel’s culture; and most pressingly, first-hand experience in the technology reshaping the data center,” writes Kelleher.

“That leads us to former Intel hand Pat Gelsinger, though there is no guarantee that Intel can pry Mr. Gelsinger from VMware.”

Kelleher handicaps the possible appointments. He dismisses rumors in the blogosphere of names such as Scott Forstall, the recently departed software luminary from Apple (AAPL), Microsoft’s (MSFT) former Windows veep Steven Sinofsky, and former Advanced Micro Devices (AMD) CEO Dirk Meyer, all of whom seem to him “curious” picks.

Kelleher also breezes past recent VP promotions, including Stacy Smith, Intel’s CFO; Brian Krzanich, the COO, and Renee James, head of software, instead focusing on Gelsinger and former Motorola Mobility CEO Sanjay Jha:

If Intel’s issue is mobility, why not take Sanjay Jha, idled by Google’s acquisition of Motorola Mobility? […] Mr. Jha, presiding over the birth of [Qualcomm's (QCOM)] Snapdragon, is arguably the man who made ARM cores into a mobility monolith. And by bringing the first Android phones to market (we remember him walking around a table at a Motorola analyst day, showing off the first Droid), he set Android on its way to market dominance. But Intel believes it has a mobility strategy built around its ATOM line. The company has too much invested in its x86 architecture, its “tick-tock” timing, and its relentless push to get smaller, to complicate the issue with a man whose paycheck says Intel but whose heart belongs to ARM […] In 2009, Pat Gelsinger left a leading role at Intel because the path to the CEO post appeared closed […] Mr. Gelsinger, it should be noted, does not come from the mobility side, though we believe that Intel is confident it can reach its goals in the mobility space with its existing engineering and architectural roadmap. As it deploys its “tri-gate” three-dimensional architecture and shrinks even further down from the 22-nm process of Ivy Bridge, Intel CPUs should begin to compete with ARM-licensed products on power-thriftiness. If Intel can differentiate beyond computing and application processing, for example into tighter graphics-compute integration with hard-wired (McAfee) security, it could have a competitive product without having to steer off the roadmap. Mr. Gelsinger has been immersed in virtualization and cloud at EMC and VMware, and it is here in the data center that Intel needs to lead. There are risks to the Xeon line as ARM will make its belated push into PCs and the data center. Far up the food chain in the semiconductor capital equipment space, Applied Materials CEO Mike Splinter reports that while mobility is fueling current memory demand, the adoption of cloud-based storage is tempering memory demand growth for the long term. Utility-based data storage, like utility based electricity, requires less local content as data needs are met from central repositories. In short, fewer servers, data storage arrays, and PCs will eventually be required in the era of virtualization and cloud. With Mr. Gelsinger, Intel would have an experienced hand immersed in virtualization, cloud, big data, and all the other next-generation data center developments currently transitioning from first-mover trend to status quo. If Mr. Gelsinger says no, and there is at least a 50-50 chance he would, we would expect Intel to consider Mr. Jha.

Part of Kelleher’s argument lies in the notion that Intel may have to stop depending on merely appointing those with familiarity with manufacturing. It will have to consider not just its own x86 products but also accommodating devices based on ARM Holdings (ARMH) chip technologies:

Intel has historically operated as a vertically integrated semiconductor company, making expertise in factory operations a key consideration in the CEO search. In the future, we could see Intel adopt more of a hybrid approach (what Motorola used to call “asset light”) and even make ARM-interoperable products. Even as ARM is pushing into the data center, we think that Intel’s belated push into smart devices and tablets holds more opportunity.

Intel shares today are up 36 cents, or 1.9%, at $19.72.
http://blogs.barrons.com/techtraderdaily/2012/11/23/intel-emcs-gelsinger-or-motos-jha-would-be-decent-ceo-picks-says-argus/?mod=BOLBlog