Intel, Under Pressure to Rethink Its Business, Ousts Its Chief Executive

Robert Swan, who has held the job for two years, is leaving the Silicon Valley chip giant after an activist investor pressed for change.

SAN FRANCISCO — Intel, a semiconductor pioneer, on Wednesday ousted its chief executive, Robert Swan, as the company faces pressure from an activist investor and grapples with the loss of leadership in producing ultrafast chips.

The Silicon Valley giant said Mr. Swan, a finance specialist who has been chief executive since January 2019, will be replaced in mid-February by Patrick Gelsinger, a former chip designer and 30-year Intel veteran who has led software maker VMware since 2012.

Intel’s board moved to end Mr. Swan’s tenure as the company grapples with the fallout from manufacturing problems that have ceded its longtime technology lead to production services offered by Taiwan Semiconductor Manufacturing Company and Samsung Electronics. Factory innovations that pack more tiny transistors on each square of silicon allow computer chips to do more at a lower cost.

Intel has since lost a series of technical leaders, and its stock price has stagnated. Those issues prompted the activist hedge fund Third Point to recently acquire a stake in Intel and press for big changes in its business. Third Point argued that Intel’s problems could force the United States to rely more heavily “on a geopolitically unstable East Asia” to power vital technology ranging from personal computers to data center hardware.

“Intel was built on the vision of engineering genius, and without the best talent, the current trajectory will not be reversed,” wrote Daniel Loeb, Third Point’s chief executive, in a letter to Intel’s board last month.

The leadership change is designed to address that issue, returning an engineer to the top post. Mr. Gelsinger, who is 59 and joined Intel when he was 18, got his college education with the company’s help and swiftly rose in its technical ranks. He was the lead architect of the widely used 80486 microprocessor and managed development of 14 chip projects.

Mr. Gelsinger became Intel’s first chief technology officer and for years hosted the company’s annual conference for hardware and software developers. He learned management skills from Andrew Grove, Intel’s acclaimed former chief executive.

Mr. Gelsinger has said he had turned down previous overtures about being chief executive. At one point, he went so far as to get a VMware tattoo. But he relented this time.

“To come back ‘home’ to Intel in the role of C.E.O. during what is such a critical time for innovation, as we see the digitization of everything accelerating, will be the greatest honor of my career,” Mr. Gelsinger wrote in a letter to Intel employees.

Intel declined to make Mr. Swan and Mr. Gelsinger available for interviews.

Many of Intel’s key leadership departures in recent years occurred under Brian Krzanich, the chief executive who was forced out in 2018 after a consensual affair with a subordinate. But Intel suffered a blow last year when Jim Keller, a celebrated engineer who was helping to overhaul development processes, left the company.

Venkata Renduchintala, a former Qualcomm manager who had been trying to help Intel recover from its manufacturing problems, also departed in 2020 after Intel disclosed that its next production process would be delayed.

Mr. Swan, 60, is credited with helping to ease internal squabbling at the company, and spearheaded changes aimed at taking Intel into other markets, such as gear for cellular base stations. He also shed ailing businesses, selling a unit that designed wireless chips to Apple and another making a variety of memory chips to SK Hynix.

But analysts said he lacked the background to make tough technical decisions.

“Chip problems take years to address, and while Swan accomplished a lot, it wasn’t enough,” said Patrick Moorhead, an analyst with Moor Insights & Strategy. He added that he expected Mr. Gelsinger “to focus on the company’s engineering culture.”

Mr. Gelsinger faces daunting issues. One is how to respond to Intel’s manufacturing problems. Besides making engineering improvements, Mr. Swan signaled that Intel might take the radical step of turning beyond its own factories for some of its flagship chips. The company already uses TSMC to make some products, but outsourcing some of its most important processors would be a blow to Intel’s image. The issue is expected to be addressed along with Intel’s fourth quarter financial results on Jan. 21.

Third Point has also raised the issue of whether Intel should continue to keep both design and manufacturing operations and whether it should spin off some unsuccessful acquisitions.

At the same time, Intel must counter invigorated competition from the chip designers Advanced Micro Devices and Nvidia. Both exploit the advanced manufacturing services in Asia, and their share prices have surged while Intel’s has languished.

Yet another issue is the rapid rise of chips that use technology licensed by Arm, a British chip designer that SoftBank last year agreed to sell to Nvidia in a deal still pending. Arm technology, which powers most smartphones, is being used by companies like Apple and Amazon to design their own chips rather than use Intel’s. Some industry executives and analysts have said Intel should begin offering new Arm-based chips in addition to its own designs.

The silver lining is strong demand for laptop and desktop PCs using Intel chips, as the pandemic has compelled more people to work from home. The company said on Wednesday that it expected to surpass its previous guidance for fourth-quarter 2020 revenue and earnings per share.

But analysts said Intel’s market share losses were bound to accelerate, particularly for chips used in servers in cloud data centers.

“There is not much Pat is going to be able to do to change that,” wrote Stacy Rasgon, an analyst with Bernstein Research.

Still, the management shift was widely viewed as positive, driving Intel’s shares up about 8 percent. On Twitter on Wednesday, Mr. Loeb of Third Point called Mr. Swan “a class act” who “did the right thing for all stakeholders stepping aside” for Mr. Gelsinger.

Don Clark reported from San Francisco, and Steve Lohr from New York.

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