Insiders say that new Intel CEO Bob Swan is a solid pick, but faces some tough challenges right away (INTC)

Intel named Bob Swan its new CEO on Thursday.
Analysts tell Business Insider that Swan, who had been CFO and interim CEO, is a smart pick.
They say the biggest challenge Swan faces is execution, as Intel has faced a chip shortage that caused it to struggle to meet customer demand.
Analysts believe Swan’s finance background will help Intel prioritize where to spend and save money, as the company faces slow growth and the looming threat of falling behind in AI.

The seven-month search for an Intel CEO finally came to a halt on Thursday, with interim chief exec Bob Swan getting the role on a more permanent basis.

Wall Street analysts tell us that Swan is a smart pick, if an unexpected one — his background is in finance, not engineering, and Swan had actually told Intel employees that he didn’t want to be the permanent CEO of the $222 billion chipmaker.

"In terms of his selection. I was a little surprised because he is a financial guy as opposed to a more outspoken CEO of [Salesforce CEO Marc] Benioff’s fabric or technology visionary like [Microsoft CEO Satya] Nadella," Daniel Newman, principal analyst and founding partner of Futurum Research, told Business Insider.

"But under his guidance as interim CEO over the last several months, the company has performed well, which is why I believe the selection made sense."

Experts don’t expect Swan to make dramatic changes to the company’s strategy, especially since he doesn’t have the background in engineering that might draw him towards some new kind of product line. But his financial expertise might help Intel face its biggest challenges, as growth at the company slows, they say.

"His background as CFO of several large companies, his time in private equity, and his willingness to cut costs even though it went against the grain of Intel’s culture, give us optimism," Morgan Stanley equity analyst Joseph Moore wrote in a note to clients.

The most pressing challenge Swan will have to face is Intel’s chip manufacturing shortage, says Patrick Moorhead, founder, president and principal analyst of Moor Insights & Strategy.

Last September, Swan wrote an open letter saying that Intel was facing a chip shortage. Since so many companies rely on Intel’s hardware, this shortage impacts its customers’ results as well — earlier this week, Microsoft blamed a dip in its Windows division revenue in part on the idea that Intel’s shortages hurt the PC market.

"There are a lot of customers who rely on Intel," Moorhead told Business Insider. "They have missed key shipment dates on some key products that have made it challenging for customers to run their businesses effectively. There’s this downstream effect."

Swan’s financial background

Moorhead says that he had the chance to speak to Swan about why he decided to stay on as CEO.

"The way he explained it to me, initially when he was appointed, he didn’t want the CEO job," Moorhead told Business Insider. "As he got into the seat, he was the [interim] CEO over the course of seven months. He started to like the job, and he likely saw himself being successful at it and threw his hat in the ring."

Moorhead initially worried that Swan’s CFO background might make him too conservative, rather than taking the necessary risks as a CEO should, but after speaking with Swan, he set aside these concerns. Swan told Moorhead that he asked Intel’s technology leaders to be "fearless" in the way Intel attacks its problems.

And while Swan doesn’t have a technical background, the analysts we spoke to agree that he has the background to understand the company’s challenges, and enough experts on his team to come up with solutions.

Addressing the chip shortage

In the short term, Moorhead believes that Intel is doing the right things to address its chip shortage — a $1 billion investment in its own manufacturing sites will help speed up production, while softening demand from China and the major cloud providers mean that the company will be able to catch its breath.

"The tariffs are causing a lot of slowdown in China, and that has impacted a lot of technology companies and impacted Intel, Apple and Nvidia," Moorhead said. "The cloud providers are being more conservative right now. They see how much demand they’re getting. They’re seeing how much capacity they need and they pull back."

Overall, Moorhead projects that Intel chip supply will catch up to demand in another quarter or two, ending the shortage.

Investing in future growth

With that said, Intel’s more existential crisis is a matter of focus. The reality, these analysts say, is that Intel needs to double down on what works, as its period of slow growth is likely to continue.

The analysts we spoke to agree that Intel needs to double-down on its core chip businesses, which has a history of generating strong profits. That’s as opposed to getting distracted by expensive new research projects, or engaging in pricey, risky mega-acquisitions.

At the same time, Moorhead believes that Intel needs to handle the looming threat of Nvidia, the graphics processor manufacturer that has emerged as an early leader in artificial intelligence hardware. Moorhead believes that the time is right for Intel to work to catch up to Nvidia in AI and related technologies, before it’s too late.

Still, Morgan Stanley’s Moore believes that it’s time for Intel to engage in some kind of soul-searching, as it figures out what businesses to stay in, and which to cut loose. It can’t compete with Nvidia in graphical hardware, says Moore, so Intel has to pick its battles.

"Intel needs to be realistic about these efforts, and have clear internal milestones for what constitutes success and reasonable investment," Morgan Stanley’s Moore wrote.

Ultimately, though, Futurum’s Newman notes that much of Swan’s compensation package is performance-based. If Swan wants to cash in many of his equity awards, he’s going to have to make sure Intel delivers top-tier results. So Swan’s challenges are tough, sure, but the rewards are many.

"It’s obviously a very generous compensation package but when you’re running a company the size of Intel with undoubtedly a lot of pressure to perform, it makes sense that the CEO does get paid that well," Newman said. "Some of his stock options were tied to him meeting and maintaining significant growth, and that’s going to be a challenge."

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Source: Business Insider