Intel’s new CEO Pat Gelsinger has a difficult task ahead of him. What it means for stock

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Just over twenty years ago, Pat Gelsinger became

IntelS

first chief technology officer. The engineer won the distinction after leading the design of the revolutionary 486 computer processor and earning the respect of CEO Andy Grove, who mentored him for years.

However, Gelsinger did not get Grove’s top job. After 30 years at Intel (ticker: INTC), he left in 2009. Now Gelsinger is back, with the position of CEO he probably wanted all the time. He replaces Bob Swan on February 15.

Gelsinger’s job is cut. When Intel reports fourth-quarter earnings on Thursday, the chip giant is expected to generate a massive annual profit of nearly $ 21 billion on sales of $ 75 billion. However, analysts predict declines in 2021. A number of manufacturing issues at Intel have allowed rivals

Advanced micro appliances

(AMD) and

Nvidia

(NVDA) to take part in key chip markets.

Intel shares fell 17% in 2020, even though the PHLX Semiconductor benchmark rose 51%.

In November, close to the 2020 stock low, Barron’s claimed that Intel still has a lot of value and could regain its mojo with new ideas and bold new management. From our article, the stock increased by almost 30% compared to a 5% gain for the S&P 500 index. Intel shares were spurred by a pressure campaign from activist investor Daniel Loeb, who called for significant changes from the board Intel at the end of December.

Gelsinger’s appointment is a step in the right direction. His technical expertise is a stark contrast to the financial background that Swan brought to the workplace.

Dan Niles, a longtime investor and portfolio manager of the Satori Fund, says Gelsinger’s appointment reminds him of the promotion of CEO Satya Nadella to

Microsoft

(MSFT). “My belief for technology companies – for any company – is that it’s important to have someone in the company’s DNA,” says Niles. Since Nadella became CEO in 2014, Microsoft shares have returned 576%, compared to the S&P 500’s profitability of 149%.

At the same time, Gelsinger brings the benefits of an outsider. He spent three years as chief operating officer at EMC before becoming the CEO of the software pioneer

VMware

(VMW) in 2012. Understanding both software and hardware engineering has become essential to success in the chip industry.

Moor Insights & Strategy analyst Patrick Moorhead, who worked at AMD during Gelsinger’s Intel tenure, describes him as a tough competitor, a good executor and someone capable of motivating people. “That’s what Intel needs,” he says.

Gelsinger’s most pressing issue will be dealing with Intel’s production issues. For a company that has long insisted on doing things indoors, there is no easy solution. Atomic accuracy, huge capital costs and competition for top talent make it a process of years.

When it comes to the most advanced chips, Intel is already far behind production power

Taiwan Semiconductor Manufacturing

(TSM), which builds chips for AMD and Nvidia as well

Apple

(AAPL). Gelsinger will have to decide whether to facilitate the global approach to Intel chips and outsource more work to a manufacturer like Taiwan Semi. This has become a Wall Street preference in recent months.

One of Swan’s significant final acts at Intel will likely be a production update during the company’s earnings call on Thursday. After that, Intel’s future is in Gelsinger’s hands. The good news for Intel investors is that they are likely to be the best person for the job.

Write to Max A. Cherney at [email protected]