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Technology

Intel is downgraded due to ‘lack of leadership’ after CEO resignation; shares fall

Intel’s surprising management turnover will have a negative impact on its share price, according to Nomura Instinet.

The firm lowered its rating to neutral from buy for Intel shares, saying the search for the company’s next CEO will add to concerns over its strategy.

On Thursday, Intel announced the resignation of its CEO Brian Krzanich for his alleged infraction of the company’s nonfraternization policy stemming from a consensual relationship. Krzanich violated the policy that said managers cannot have relationships with people who report to them either directly or indirectly, Intel said. He was replaced on an interim basis by Chief Financial Officer Robert Swan.

“CEO Krzanich’s departure is disappointing on multiple levels. We believe the lack of leadership will only add to the already growing uncertainty about Intel’s long-term franchise,” analyst Romit Shah said in a note to clients Monday. “Our point is that INTC’s multiple started compressing before Mr. Krzanich’s departure; lack of clear leadership will likely only add to the already growing uncertainty about Intel’s long-term outlook.”

Intel shares are down 2.4 percent in Monday’s premarket session after the report. Its stock is up 14 percent this year through Friday versus the S&P 500’s 3 percent return.

Shah reduced his price target to $55 from $60 for Intel shares, representing 5 percent upside to Friday’s close.

The analyst also noted Intel’s problems in moving to its next-generation chip manufacturing technology.

The chipmaker revealed on its April 26 earnings conference call that it delayed volume production under its 10-nanometer chip manufacturing process to next year. Conversely, AMD said on its call that it plans to start next-generation 7-nanometer chip production in late 2018.

One nanometer equals one-billionth of a meter. Smaller nanometer chipmaking technologies allow companies to create faster, more power-efficient chips.

“We believe the most likely scenario is that Intel promotes Dr. Murthy Renduchintala who oversees most of Intel’s product groups. Dr. Renduchintala is a well-respected engineer but we think won’t immediately convince investors that Intel can overcome its challenges,” Shah said. “We believe Intel needs to hire an external candidate such as Hock Tan at Broadcom or Sanjay Jha from GlobalFoundries that have a proven track record of driving shareholder value.”

Intel did not immediately respond to a request for comment.

Source: Tech CNBC
Intel is downgraded due to ‘lack of leadership’ after CEO resignation; shares fall

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