"One day, fickle investors are applauding business-school alumni for paying big dividends and slashing costs. The next, they are demanding that engineers take over to make up for lost innovation. Be careful that they don't change their minds again.
This is what happened in early December when Pat Gelsinger unexpectedly retired as chief executive and director of Intel. The Pennsylvania-born engineer, who helped pioneer USB ports and Wi-Fi, had been appointed on Jan. 13, 2021, with a mandate to regain lost technological ground from Taiwan Semiconductor Manufacturing Co. and Advanced Micro Devices. The chip maker's shares rose almost 7% on the news.
On the day Gelsinger stepped down, they closed roughly flat. Investors weren't heartbroken to see him go.
Kelly Ortberg needs to take note: In 2024, he took charge of Boeing, the other big fallen angel of American manufacturing.
To be sure, the plane maker's problems don't have the exact same origin. Boeing got most of the big picture right, developing the lightweight 787 Dreamliner when Airbus was still entangled in making the A380 superjumbo. But it outsourced too much of its operations and skimped on quality control to disastrous effect.
By contrast, Intel has held on to the vertically integrated model of both designing and manufacturing chips.
Its mistakes were product- and production-related: Executives first missed the boat on Apple's iPhone and then on the graphics processor units that have become the cornerstone of the artificial-intelligence revolution. Intel also didn't transition quickly enough to smaller semiconductor nodes.
There is a common thread, though: Since the 2000s, both companies became too narrowly focused on present profitability, despite operating in sectors in which big spending is essential to maintain a competitive edge decades down the line. Dividend payouts and share repurchases jumped and company cultures moved away from technical talent to rewarding managers based on financial metrics instead.
Investors eventually saw the folly of this approach. In a virtual meeting, every member of Intel's board signed on to Gelsinger's vision, which included a bold, costly bet on building new manufacturing facilities to make chips on contract for other companies and become a centerpiece of the Biden administration's industrial policy.
Nonetheless, after the company reported its largest-ever quarterly loss in October, the board pushed Gelsinger out, even though the new production process he was spearheading, called Intel 18A, won't prove its worth until mid-2025. Now, Intel's strategic direction is unknown, and Wall Street has again focused on potential short-term solutions, such as possibly selling off bits of the company without forgoing the $8 billion in grants from the 2022 Chips Act.
Bringing in Mr. Fix-It has worked in the past. In 1987, Andy Grove unleashed the "Intel Inside" era with an expensive pivot from memory chips to microprocessors. Elsewhere in Corporate America, Alan Mulally went from leading the extremely successful 777 program at Boeing to reviving the lineup of an ailing Ford Motor in 2006.
Still, it also is common for a new CEO's sweeping, innovation-focused plans to be cut short. It happened to Robert Stempel at General Motors in the 1990s, and arguably even to Leo Apotheker at Hewlett-Packard in 2010: He made some very bad decisions during his few months as CEO, but his vision of spinning off the personal-computer business to focus on software and cloud computing was vindicated when Hewlett-Packard split in two in 2015.
At Boeing, the technically minded Ortberg was lauded as the right choice after Dave Calhoun, an insider with no engineering background, failed to steady the ship. So far, he has managed to end a damaging machinists strike, but he will soon face the urge to meet short-term delivery targets to plug the company's hemorrhaging cash position.
His true test will come in a few years, when a replacement for the 737 MAX starts being developed. Almost two decades will have elapsed since the first flight of Boeing's last clean-sheet model, the 787. Without a bold, expensive attempt to push aircraft manufacturing forward, however, the risk will be larger than ever that airlines could shop at Airbus for their next-generation jets.
Yet with much of Boeing's old engineering talent now gone and investors hungry to recoup some of their losses, the temptation to play it safe will be strong.
Though Ortberg has pledged to return to "the right focus and culture," the Intel debacle underscores the importance of getting constant buy-in from both lower and upper ranks.
It also is a warning for value investors and policymakers: While today's market enthusiastically lines up behind the moonshots of software giants, patience runs much thinner for mature, hardware-based industries.
Since Gelsinger's departure, Intel's stock has lost a further 17%. The most dangerous thing about calling Mr. Fix-It is the risk that he gets fired while live wires are still spread over the floor." [1]
1. Intel's Pitfall Holds Lesson for Boeing --- The chip maker's experience with its own Mr. Fix-It CEO shows help can sometimes arrive too late. Sindreu, Jon. Wall Street Journal, Eastern edition; New York, N.Y.. 02 Jan 2025: B10.
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