Intel Corp. (INTC) chief executive officer Paul Otellini surprised investors by announcing that he will retire next May at the annual meeting – almost two years ahead of expectations. He said he will oversee an orderly transition as the board considers both internal and external candidates.
The market initially reacted with a sell-off of Intel stock, but by early afternoon, it rebounded and was barely changed from the previous close at $20.11, down 6 cents.
But the 62-year-old Mr. Otellini’s departure announcement is still worrisome. CEOs normally don’t like to leave on a down note and Intel is definitely in a down period. Last month it reported third quarter net fell 14% on a 5.5% sales decline. The current quarter is expected to show more of the same as economies weaken worldwide.
Longer term, Intel doesn’t have much presence in the fastest growing part of the semiconductor market: chips for mobile phones and tablets. Its low-power Atom design has made little headway against mobile processors designed by ARM Holdings plc. (ARMH) of Cambridge, UK.
Last year, Intel got 66% of its revenue from the PC and laptop market, and 19% from servers in the data center. Intel dominates those huge markets but they are slow growing even in good times. Despite huge investment in designing chips to power mobile phones and tablets, Intel has had little success in penetrating the mobile market. Only 9% of its revenue last year came from its mobile products.
Mobile devices are a growing business, even in a weak worldwide economy. That was reflected recently when mobile-chip maker Qualcomm’s (QCOM) market cap exceeded that of Intel.
INTC Market Cap data by YCharts
Intel is expected to get a boost in coming quarters as the replacement cycle for Microsoft’s (MSFT) Windows software drives new PC and laptop sales. But Windows 8 has gotten mixed reviews, and companies worried about the disruption of introducing a new PC interface may be slow adopters.
Otellini’s official statement said he was leaving because “it’s time to move on and transfer Intel’s helm to a new generation of leadership.”
Over Otellini’s time in office, Intel’s earnings per share rose 83% and its dividend rose 181%. It maintained its dominance of the PC market, even capturing Apple’s (AAPL) Macintosh computers. He moved Intel into the security market, including the $7.7 billion acquisition of No. 2 antivirus software maker McAfee.
But Otellini’s achievements haven’t done much for investors. Over the last ten years, Intel stock has risen about 1% a year – that’s better than Microsoft’s slight decline, but it pales in comparison to chip stocks that are hitched to the mobile market.
Intel’s revenue grew faster than its stock price did, but it was a far cry from being a standout performer.
INTC Revenue TTM data by YCharts
Over the last year, financial measures have steadily declined, with the stock's under-performance pushing up Intel's dividend yield.
INTC Return on Invested Capital data by YCharts
Intel remains one of the world’s strongest companies with a commanding market share in its core business and huge R&D capabilities. Investors can rely on its generous dividend. But Mr. Otellini’s decision to depart doesn’t seem to foretell any turnaround in its growth prospects.
Bill Bulkeley is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.
