When Brian Krzanich, Intel's chief executive, was forced out over misconduct last June, it was the latest in a series of setbacks for the Silicon Valley company. Intel was taking the brunt of the blame for the Meltdown and Spectre vulnerabilities, which were uncovered in chips inside almost all of the world’s computers. It was also falling behind in the development of its latest 10-nanometer node, losing a major advantage over rivals.
But the company has been firing on all cylinders financially for chief financial officer Robert Swan, who was selected as interim CEO. Intel reported revenue of $54.9 billion in the three quarters after Krzanich's abrupt departure. The company earned $48 billion over the same span in 2017. Even though shares have fallen about 10 percent over the same period, operating profit is up 30 percent annually.
Intel, which holds more than 98 percent market share in data centers and is inside 90 percent of personal computers, has signaled to shareholders that if its business isn't broken there's nothing to fix. On Thursday, it promoted Swan permanently to CEO. Swan emerged as the leading candidate after seven months were spent searching inside and outside Intel. The process ended right where it had started.
Refilling the chief executive role was one of the highest priorities for the world's largest maker of computer processors. Krzanich, who had been hired by Intel in 1982, stepped down last year after Intel uncovered a consensual relationship he had with another employee, in violation of corporate policy. The company he led since 2013 started shortly after searching for his replacement.
Swan was considered a dark horse candidate to lead the Santa Clara, California-based company. Intel has long promoted from within when choosing its CEO, tapping executives with deep roots in engineering or manufacturing leaders for the role. Swan's background is in corporate finance and he only joined Intel in October 2016. He was also adamant about not wanting the position long-term.
When he took over as interim CEO last year, Swan said that he focused on developing a deeper understanding of Intel's opportunities, challenges, employees and customers. "When the board approached me to take on the role permanently, I jumped at the chance to lead this special company," Swan, who served as eBay's chief financial officer for nine years before Intel hired him, said in a statement.
"This is an exciting time for Intel," he added.
Swan was promoted to preserve its financial stability. Intel's revenues rose 13 percent last year to $70.8 billion bolstered by a spending surge from Amazon, Microsoft, Google and other tech companies. Intel's modem sales have surged since last year, when Apple installed the chips in all its latest iPhones. Its largest business unit, personal computers, also turned itself around in the second half of 2018.
"Important in the board’s decision was the outstanding job Bob did as interim CEO for the past seven months, as reflected in Intel’s outstanding results in 2018," said Andy Bryant, Intel's chairman, in a statement. "Bob’s performance, his knowledge of the business, his command of our growth strategy, and the respect he has earned from our customers, our owners, and his colleagues confirmed he is the right executive to lead Intel.”
“As Intel continues to transform its business to capture more of a large and expanding opportunity that includes the data center, artificial intelligence and autonomous driving, while continuing to get value from the personal computer business, the board concluded after a thorough search that Bob is the right leader to drive Intel into its next era of growth,” Bryant added in Thursday's statement.
Intel, the second largest chip maker behind Samsung is also facing questions about the future. The company said that it would report revenues of $71.5 billion in 2019, an increase of one percent, its slowest rate of annual growth in half a decade. The slowdown stems from a downturn in the smartphone market, a retrenchment in data center spending and uncertainty caused by the simmering trade war between the U.S. and China.
Intel has also sparked concern over whether it still holds a manufacturing lead. Last year, the company said that chips based on the 10-nanometer process node would be delayed for another year, with production slipping from the second half of 2018 to before the end of 2019. The manufacturing glitch has given Intel's biggest competitor in computer chips, AMD, an opportunity to steal market share in data centers and PCs.
TSMC, the chip industry's largest contract manufacturer, has taken Intel's manufacturing crown. Last year, the company started churning out chips based on the 7-nanometer node, which is considered comparable to Intel's 10-nanometer node but a generation ahead of Intel's current 14-nanometer technology. AMD is outsourcing production of its latest line of computer chips to TSMC so that it can take advantage of 7-nanometers.
Even without an official chief executive, Intel has been trying to put the past behind it. Last year, Intel announced plans to spend billions of dollars on upgrading its manufacturing plants starting in 2019. The company also bumped capital spending in the second half of last year to combat a shortage of chips dragging down growth in laptop and desktop computers. Intel's capital spending jumped to $15.2 billion in 2018. It totaled $11.8 billion in 2017.
Swan added that "our execution must improve" to confront the challenges facing Intel, which was founded 50 years ago. The company is moving into a broader range of markets, including artificial intelligence and networking. Swan said that "ambitions have never been greater and we have a relatively small share of the largest addressable market" - about $300 billion by 2022 - "in Intel’s history."
"We need to continue to evolve to continue making Intel’s future even brighter than our storied past," Swan explained in a letter sent to employees on Thursday.