Intel shares down after CEO Brian Krzanich resigns over relationship with employee

The surprise move comes after a board investigation found he violated the company's nonfraternization policy for managers.

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Intel CEO Brian Krzanich

Intel CEO Brian Krzanich has stepped down from the company. 

Stephen Shankland/CNET

Brian Krzanich is out as CEO of Intel .

The chip giant said on Thursday that Krzanich has resigned and that the board has named Chief Financial Officer Robert Swan as interim CEO. The board has begun a search for a permanent CEO, looking at both internal and external candidates. There's no clear successor in line for the top role at Intel. 

The resignation came after the board learned of a past consensual relationship between the married CEO and an Intel employee, and an investigation confirmed that it violated a nonfraternization policy that applied to all Intel managers, the company said. 

"We appreciate Brian's many contributions to Intel," Intel Chairman Andy Bryant said in the release. "The board believes strongly in Intel's strategy and we're confident in Bob Swan's ability to lead the company as we conduct a robust search for our next CEO."

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Intel shares fell 2.3 percent to $52.23 in midday trading. 

The resignation marks an ignoble end for an executive whose chief legacy is the push to diversify one of Silicon Valley's biggest and most powerful players. Krzanich, who took the reins five years ago after serving as the operating chief, was considered a safe pick. He steered Intel through questions about whether the company could remain dominant as the world went more mobile, investing in everything from drones to virtual reality. 

Intel builds the x86 family of chips that traditionally power PCs and servers, but the world has increasingly turned to smartphones that used chips from the likes of Qualcomm based on designs licensed from another Intel rival, Arm. Under Krzanich, Intel positioned itself for a fresh start with the advent of next-generation 5G wireless technology, and it has edged into the mobile world as a supplier for Apple's iPhones . It also has expanded into the automotive industry, the internet of things and other areas that are growing faster than computers.

Not all of his bets have paid off. Intel beat a hasty retreat from VR once the buzz over the technology died down. And although Intel gained a foothold in mobile devices, Qualcomm still dominates that market. 

The most recent headaches for Krzanich have come from having to deal with massive vulnerabilities (called Spectre and Meltdown) that potentially left chips from Intel, Arm and AMD open to hacking attacks. He's long been a fixture as a CES keynote speaker, but security concerns dominated this year's presentation. 

Intel's manufacturing woes

Intel also has lost its position as the world's leader in the process technology for building semiconductors. Intel admitted the latest problem with its previously reliable "tick-tock" annual improvement cadence in April when it delayed, from 2018 to 2019, the arrival of next-generation chips with smaller electronic components

"The tick-tock clock has completely stopped," said Linley Group analyst Linley Gwennap.

Companies like TSMC and Samsung , which manufacture chips for customers like Apple and Qualcomm, have moved more quickly to newer technologies, which gives their customers an edge. It's getting tougher to build more-advanced chips, but moving to the latest technology is crucial for improving performance and battery life of devices. 

"BK will go down in history as the CEO that let Intel's process leadership advantage slip away," Bernstein analyst Stacy Rasgon said. 

But Krzanich also will be remembered for championing workplace diversity. He made it a central issue at his CES keynote address in 2015, pledging $300 million to support better representation in technology. His action was one of the boldest at a time when the noise over diversity was just starting to spike. 

"This isn't just good business," Krzanich said in his speech. "This is the right thing to do."

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Next in line?

Intel doesn't have an obvious successor. The company has seen a slew of key executive departures over the last few years, including former CFO Stacy Smith; Diane Bryant, once the head of the data center group but now with Google ; and former president Renee James.

"Krzanich's resignation comes at a difficult time for Intel," Cowen analyst Matthew Ramsey said. "We fail to see a clear internal long-term successor given recent changes to senior management."

If Intel choses to name a new CEO from within its ranks, one candidate is Venkata "Murthy" M. Renduchintala, chief engineering officer and group president of Intel's Technology, Systems Architecture and Client Group, said analysts Gwennap and Patrick Moorhead of Moor Insights and Strategy. 

Renduchintala joined Intel in late 2015 from rival Qualcomm, where he helped oversee the company's chip operations. While Intel has long controlled the PC and server chip market, Qualcomm has dominated the faster-growing mobile market. The hiring of Renduchintala was viewed as a big win for Intel in its efforts to expand beyond its core PC and server markets. 

Another possibility for the CEO role could be Navin Shenoy, general manager of Intel's Data Center Group.

There's also the outside world.

"I wouldn't be surprised if the company looked externally," Moorhead added.

Nor would Creative Strategies analyst Ben Bajarin, who suggested Intel's board of directors "should go hard after Pat Gelsinger as the new CEO." Gelsinger, formerly Intel's chief technology officer, was passed over for the CEO job for Krzanich's predecessor and now runs VMware, a software and cloud computing company.

But in its 50-year history, Intel CEOs have all come from inside. The first two, Robert Noyce and Gordon Moore, were Intel co-founders. The third, Andy Grove, was the third employee. Craig Barrett, Paul Otellini and Krzanich also rose through Intel's ranks.

Whoever takes over, the "priorities will be to fix the manufacturing problems, continue the modernization of Intel's corporate culture, and manage the diversification into new areas like automotive and AI," Gwennap said.

Intel, which declined to comment further, is hoping for a smooth transition during the search for a new CEO. To reassure investors, the company said it expects to have a record second quarter with revenue of roughly $16.9 billion and earnings, excluding one-time items, of 99 cents a share, above its previous forecast. Intel will report full results on July 26.

Originally published June 21 at 6:21 a.m. PT. 
Update, 8:01 a.m. PT: Added stock quote and background on succession concerns. 
Update, 10:28 a.m. PT: Added analyst comments and background information. 

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