Can Brian Krzanich’s practicality revive Intel? by Kevin Kelleher @FortuneMagazine January 24, 2014, 10:34 AM EST E-mail Tweet Facebook Google Plus Linkedin Share icons By Kevin Kelleher, contributor FORTUNE — All along Intel’s INTC storied history, an investment in the company has essentially been a vote of confidence in Moore’s law — the observation, named after an Intel founder, that the number of transistors on a microchip doubles every two years. But if Moore’s law is still working well enough, the stock of the company he co-founded has not been advancing quite as steadily. Over the past two years, the stock is largely unchanged from its current $25 a share price — technically, it’s down 4% in that period, against a 52% rise in the Nasdaq Composite. And as Bespoke Investment noted, the stock has gapped down each of the past eight quarters Intel has posted earnings. Much of Intel’s subpar performance is tied to its longtime dependence on chips for the PC market, which has seen sales dwindle in the era of the tablet. It’s not an issue of the technology of Intel’s chips, it’s the devices they’re going into — tablets and smartphones, in particular. Intel has been struggling to find a way into mobile chips, as well as devices in emerging areas like wearable computers and the Internet of Things. MORE: Why Qualcomm acquired 2,400 patents from HP That has left Brian Krzanich, appointed as Intel’s CEO last May, tasked with pushing Intel into the post-PC era. Krzanich joined Intel after graduating from San Jose State University in 1982, rising through a number of positions in the company’s manufacturing operations. His roots in engineering were welcome inside Intel, but some investors wondered whether he had what it takes to revive the chipmaker. Following in the footsteps of several high-profile CEOs before him, Krzanich was something of a mystery when he was tapped to lead Intel. He has since emerged as a quietly practical leader with a shrewd, no-nonsense approach that appeals to some on Wall Street. “At a very high level,” BMO Capital analyst Ambrish Srivastava wrote in a report this month, “we see the company more willing to accept and address the challenges that the company faces.” Some of Krzanich’s grit became evident during Intel’s investor day in November. After Intel Chairman Andy Bryant told the investment crowd he was “personally embarrassed that we seem to have lost our way,” Krzanich stepped forth to diagnose the cultural problem that led Intel to be blindsided by the iPad: “We’d become insular,” he said. “We’d become focused on what was our best product vs. where the market wanted to move.” In that moment, Krzanich presented himself to investors as the born-and-bred Intel engineer who would find the market’s pulse and reposition the company toward it. As if to show his resolve in breaking with tradition, he vowed to expand the company’s contract manufacturing business, allowing more chipmakers access to a crown jewel, Intel’s advanced process technology. MORE: Lessons from the death of a tech Goliath For Krzanich’s turnaround to work, it will need some time. Last week, when Intel reported earnings for the most recent quarter, its traditional business of PC chips saw revenue decline 4% in a quarter when PC shipments fell 10%. Conversely, revenue from Intel’s data-center group rose 8%, well below the double-digit rate analysts were expecting. Intel blamed that on excess inventory and a slow recovery in corporate IT spending. In the conference call to discuss earnings, Krzanich discussed the Bay Trail system-on-a-chip platform Intel recently launched for tablets and smartphones. His goal is to sell 40 million tablets with Intel processors by year’s end, having sold 10 million through 2013. Krzanich also told Re/code how its low-power Quark chips would “find a home in all manner of gear from machines to wearables and more.” Krzanich is not immune to missteps. At CES this month, he demoed a number of devices in wearable computing, but the gambit backfired when the company admitted some of those devices used chips from ARM, the rival whose chips power the iPad and other tablets. But neither is Krzanich averse to bold measures. One of the pet projects of his predecessor, Paul Otellini, was OnCue, Intel’s bid at creating new revenue streams outside of pure chips. OnCue was an Internet-driven set-top box designed by Eric Huggers, who previously created the well-received BBC iPlayer. OnCue delivered an interface that, according to those who saw it, was “beautiful” and “audacious,” something that could finally deliver on the promise of big-screen Internet video and bury for good the medieval experience of navigating pay TV. This week, Krzanich sold OnCue off to Verizon VZ for a reported $200 million, a fifth of Intel’s original asking price. The deal is a good one for Verizon, helping it take on Comcast CMCSA and perhaps improve the TV experience for the small audience that has access to its FIOS TV service. Or maybe Verizon just wants to sunset a technology superior to the experience already offered by incumbents. MORE: Glow app branches out beyond conception Why would Intel sell a perfectly good innovation at a steep discount? Most likely because of Krzanich-school practicality. Intel doesn’t have to distract itself with things it poorly understands, like negotiating with the sharks that own video content. And also to win some valuable chits with Verizon, which has the power to tell mobile-phone manufacturers which chip to put into its smartphones and tablets … like the Atom or the Bay Trail, maybe? “Think of it in a way where you have a new CEO who has a strategy of delivering chips into phones and tablets, and no relationship with those big players,” Barron’s quoted an Intel source as saying. “When you have zero market share in mobile, one could argue there is a need to cement the relationship.” In other words, Intel has fallen from a giant that told other industries how to do business to a company that curries favor with potential allies. Just like an engineer. Krzanich may turn out to be a CEO like Facebook’s FB Mark Zuckerberg — so practical-minded he gets exactly what he wants in the end, even if it means passing serendipity along the way. No matter. Moore’s law progresses. And under Krzanich, Intel will try to as well. Kevin Kelleher can be found on Twitter here.