Facing rising investor pressure to speed up its lagging chipmaking prowess, Intel Corp. today parted ways with Chief Executive Robert Swan and appointed VMware CEO Pat Gelsinger to the top spot.

The appointment is surprising mainly in the fact that it took this long for Intel to appoint its former chief technology officer to the helm. It follows years of speculation that Gelsinger (pictured), who has led VMware since 2012, would be an ideal candidate to lead Intel in a new era given his onetime 30-year tenure at the chipmaking giant. Swan was Intel’s chief financial officer since 2016, a nontechnical role that made his appointment as CEO just two years ago a surprise and a disappointment to some.

Gelsinger’s appointment, effective Feb. 15, followed pressure by activist hedge fund investor Third Point LLC. It asked for big changes in December, including potentially selling off some of Intel’s many acquisitions and cleaving its design and manufacturing operations. Intel has steadfastly held together those functions despite the rest of the industry largely moving to a less integrated approach decades ago.

“Late product delivery, less than desired yields, competitive pressures and a reliance on x86 installed base has hurt the company,” said Dave Vellante, chief analyst at SiliconANGLE sister market research firm Wikibon. “It’s a perfect story for Gelsinger, who has the technical vision, a decent pile of cash, and the resources and now some investor patience to turn the ship around.”

Indeed, investors bid up Intel’s shares by more than 7% this morning on the news. Its stock had fallen about 17% last year during a surprise boom in the market during the COVID-19 pandemic.

The appointment comes just before the window closed for board nominations, according to the Wall Street Journal, so it avoids a potential clash in public with Third Point, though Intel said that wasn’t the impetus for the change. “The Board concluded that now is the right time to make this leadership change to draw on Pat’s technology and engineering expertise during this critical period of transformation at Intel,” Intel Chairman Omar Ishrak said in a statement.

Vellante noted that this attempted turnaround will be a multiyear process for Gelsinger, who is 59 years old — “perhaps two to three years before we see Intel positioned to dominate many of the new trends that are shaping the market, such as cloud, edge, data and 5G. But I would definitely bet on Pat. By the time he’s 65 he could have Intel back to its former prominence and hand the reins to someone who can take it through the second half of the decade.”

Gelsinger himself signaled an intention for Intel to accelerate its years-long move to expand beyond its roots in central processing unit chips. “While Intel’s history is rich, the transformation from a CPU to multi-architecture XPU company is exciting and our opportunity as a world-leading semiconductor manufacturer is greater than it’s ever been,” he said this morning in an email to employees.

Swan, who took the opportunity of Intel’s customarily big presence at the annual CES consumer electronics show that’s running virtually this week to sum up his accomplishments of the past three years, faced a daunting task. He took over on an interim basis in 2018 after then-CEO Brian Krzanich resigned following the revelation that he had a “past consensual relationship” with an employee.

“Swan was dealt a difficult hand,” Moor Insights & Strategy analyst Pat Moorhead told SiliconANGLE, in particular a long delay in a move to a new 10-nanometer chip process that left Intel behind other major chipmakers. “Chip problems take years to address and while Swan accomplished a lot, it wasn’t enough. I am not foreseeing any major strategic changes with Gelsinger, but I do expect him to focus on the company’s engineering culture and get it back to an execution culture.”

One of Intel’s biggest problems in recent years has been its attempt to move to chip architectures with shorter connections between transistors. While the rest of the industry has moved to interconnects of 10 nanometers or even seven nanometers, Intel remained stuck at 14 nanometers when Swan took over. In July, Intel shocked the industry by announcing that its move to seven nanometers would be late as well.

The upshot is that despite Intel’s dominance in data center chips and the long dominance of its x86 architecture chips in personal computers, Intel’s chips weren’t as competitive. It has lost ground to fast-rising competitors such as Arm Ltd. and Qualcomm Corp. in mobile devices, longtime archrival Advanced Micro Devices Inc. in mainstream processors and Nvidia Corp. for gaming and machine learning. Even Apple Inc. has begun making its own processors, which are now running its latest MacBooks.

In particular, Intel has fallen behind chip manufacturing firms such as Taiwan Semiconductor Manufacturing Co., which makes chips for AMD and Nvidia, and Samsung Electronics Co. Intel did say last year that it would consider outsourcing some of its manufacturing, but it hasn’t specified anything yet. It said it might provide more on that when it reports quarterly earnings results on Jan. 21 but added today that it “has made strong progress” on fixing the seven-nanometer delays.

Despite the challenges, Intel has improved its fortunes somewhat thanks to demand for servers for cloud computing and a resurgence of PC demand as people worked at home during the COVID-19 pandemic. It said it expects to post record revenue for 2020 and would report better-than-forecast fourth-quarter results.

As for Gelsinger, it’s a return to a company for which he has expressed great love over the years. He started at Intel at age 18 as a quality control technician, later becoming a protege and close assistant to legendary former Intel CEO Andy Grove, working alongside him in Grove’s cloistered set of cubicles in the company’s headquarters building in Santa Clara, California. He became Intel’s first CTO in 2001, helping push forward generations of Intel processors.

“To come back ‘home’ to Intel in the role of CEO 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,” he said in his email today.

At the same time, Gelsinger’s departure from VMware raises questions about the provider of virtualization software that improves server efficiency in data centers. Gelsinger is credited with VMware’s surprise success in the cloud computing era, which was expected to subsume its core offerings. But he forged deals with cloud providers such as Amazon Web Services Inc. to keep the company not only relevant but thriving, even under the majority ownership of Dell Technologies Inc..

VMware’s shares fell almost 8% in midday trading on the news as analysts such as William Blair’s Jason Ader downgraded their ratings on the stock. “We worry that these changes at the top could create material disruption in the VMware organization and business,” he wrote in a note to clients. Most observers think the table is set for Sanjay Poonen, VMware’s chief operating officer, to take over as CEO, but the company may be doing an executive search anyway.

“Gelsinger has VMware cooking — networking, storage, vSphere, VMware Cloud Foundation, positioning for multicloud and a number of other acquisitions that have positioned the company for multicloud and most recently security,” Vellante said. “The big question is: Is Gelsinger getting out at the top or is this the opportunity he’s been waiting for all his work life? I’d say a little bit of both.”

Vellante added that he wonders if the fact that Dell takes a lot of cash out of VMware’s balance sheet, thwarting its ability to invest in research and development and chart its own destiny, provided an impetus for Gelsinger to leave for Intel.

In any case, the Intel job is the cap for a long and rapidly rising career for Gelsinger. He was passed over for Intel CEO and left in 2009 to replace Dave Donatelli at EMC, who had left to go to Hewlett-Packard Co. “Pat was a disruptive force at EMC and caused a lot of friction in the management ranks, which was timely as EMC was transitioning to cloud and data,” Vellante noted.

When Gelsinger was tapped to take over VMware from Paul Maritz, Vellante added, that signaled a new era. “Whereas Maritz tried to move up the stack into collaboration and email, Gelsinger got back to VMware’s infrastructure roots and had the political stomach to drive VMware into storage with vSAN, which EMC always resisted,” he said. “But more importantly, he executed on the vision of the software-defined data center and that meant market expansion into not only storage but networking.” VMware’s NSX acquisition then gave VMware the big three layers of the infrastructure stack — compute, storage and networking, he said.

Gelsinger faced challenges early in his VMware tenure. “He had to figure out and streamline VMware’s pricing model, and he was CEO when VMware tried to launch its own cloud, vCloud Air, which failed,” Vellante said. “He had to lead the development of a more coherent cloud strategy which started by capitulating that they wouldn’t own their own cloud ,rather they’d partner with AWS and eventually Microsoft and Google. The AWS deal involved deep engineering and resulted in VMware Cloud on AWS, which has been a huge success.”

Now, Gelsinger will be looking to do the same with an even more venerable Silicon Valley icon.

Photo: SiliconANGLE