INTC Intel Corporation

By Jay Greene and Tripp Mickle 

Intel Corp. Chief Executive Brian Krzanich resigned over violating company policy for having a consensual relationship with a co-worker, a sudden turn for the tech giant as it seeks to extend its dominance in PC chips into new frontiers in computing.

Mr. Krzanich's exit makes him one of the most prominent CEOs to lose a job in an era of greater scrutiny over workplace relationships.

His departure comes at a transformative time for Intel, which under Mr. Krzanich swallowed its two biggest acquisitions as it tries to expand in new arenas such as artificial intelligence and advanced automotive technologies. Intel also is fending off threats to its dominance from rivals such as Nvidia Corp., whose graphics chips power some of the fastest computers in the world.

Intel said a continuing investigation by internal and external counsel confirmed a violation of the company's nonfraternization policy, which applies to all managers. Intel said it accepted Mr. Krzanich's resignation Wednesday.

Mr. Krzanich couldn't be reached for comment.

The board said Thursday Chief Financial Officer Robert Swan would become interim CEO, effective immediately. Mr. Swan, who previously served as eBay Inc.'s CFO, is considered by the board to be a skilled finance chief who has played a critical role in improving Intel's profitability since joining in 2016, a person familiar with the matter said.

Intel, which dealt with the sudden departure of its CEO in 2012 when Paul Otellini announced plans to step down, has begun an internal and external search for a new leader.

Intel held a companywide video webcast from its Santa Clara office at 11 a.m. local time, according to a current employee who viewed the webcast. Executives on stage, who included Chairman Andy Bryant and Mr. Swan, declined to answer employee questions about the relationship that led to Mr. Krzanich's resignation, saying they wanted to protect the privacy of the Krzanich family and the person involved, according to the employee.

"The general feeling is one of disappointment," the employee said. Intel goes out of its way "to make sure we understand what the rules are and that we follow them. To have the leader of the company violate these rules is disappointing."

Mr. Swan, who was introduced by Mr. Bryant as the interim CEO, said he wasn't interested in staying on as the permanent chief.

Two current Intel executives -- Venkata M. Renduchintala, known as Murthy, and Navin Shenoy -- are believed to have the inside track among internal candidates to succeed Mr. Krzanich, according to people familiar with the company's leadership.

Dr. Renduchintala, who previously worked at Qualcomm Inc., is Intel's engineering chief, overseeing development of the company's traditional processors and coming graphics chips. He recently took responsibility for manufacturing operations, which have been plagued with delays in producing the company's next-generation chips.

Mr. Shenoy currently oversees Intel's high-margin data-center business, and before that ran its PC business -- Intel's most dominant businesses -- which both showed improved performance under his leadership, the people said.

Intel could turn to outside candidates. The company's delays in producing its next-generation chips could justify hiring an external executive with expertise to improve its approach to manufacturing, analysts at UBS said.

Mr. Krzanich's departure comes as companies wrestle with what constitutes appropriate relationships in the workplace. Intel prohibits managers from having sexual or romantic relationships with direct or indirect reports, a spokesman said.

The policy, instituted in 2011, is a "hard ban" that applies to all managers regardless of seniority level, the spokesman added. The company said it expects all employees to respect Intel's values and adhere to its code of conduct, and its policy requires employees who see or believe someone acted inappropriately to raise their concerns immediately, he said.

Intel's shares fell 2.3% to $52.23 in afternoon trading in New York. Along with the CEO news, the chip maker provided a better-than-expected financial outlook for the current quarter.

Mr. Krzanich received $21.5 million in compensation in 2017, including stock awards and other incentive pay, up 13% from the previous year, according to a regulatory filing. Intel noted that Mr. Krzanich would have been eligible for $38 million had he left the company last year by voluntary termination or retirement. Intel didn't immediately say whether Mr. Krzanich would receive that compensation now.

Mr. Krzanich's sudden exit is the latest high-level departure for the company.

Diane Bryant, former head of Intel's data-center group, joined Google's cloud business late last year. Stacy Smith, Intel's onetime finance chief who later headed up manufacturing, also left last year after three decades with the company. Kirk Skaugen, former head of client computing who was at one point seen as a CEO candidate, left the company in 2016 and is now with Lenovo Group. Renee James, Intel's former president, left in 2015.

"We fail to see a clear internal long-term successor given recent changes to senior management," analysts at Cowen & Co. said in a research note Thursday. "However, given so much change driven by Mr. Krzanich, his departure could make succession planning and further transition challenging."

While details of the relationship weren't disclosed Thursday, the resignation highlights the discussions happening in workplaces around the country over how employers should regulate office romances.

Dating policies at U.S. companies vary. Some employers don't allow senior managers to have relationships with co-workers, even if they aren't direct reports. The idea is that even if a manager doesn't directly oversee an employee, they may have more power within the organization. Other companies have no issue with consensual relationships but have asked for them to be disclosed. Still others have no dating policy at all.

Some companies have been revamping their rules around workplace relationships in the wake of the #MeToo movement. Intel, like many other technology companies, has said it was working to increase gender and racial diversity in its workplace. In its 2017 diversity report, the company said 73.5% of its total workforce was male.

Mr. Krzanich started at Intel in 1982, rising through a series of technical and leadership roles to become chief executive in 2013. He set about a broad effort to diversify the company's offerings beyond its stronghold in processor chips for personal computers, a market in which Intel holds a more than 90% share, according to Mercury Research, leaving it scant room to grow as PC shipments decline.

Intel's strength in processing chips has come under pressure as graphics processors, primarily from Nvidia, emerged as a workhorse for artificial intelligence. Intel in 2016 sought to address that market by buying Nervana Systems and Movidius, a pair of startups working on AI-focused chips. It recently launched an effort to make graphics chips to better compete with Nvidia.

Intel became more acquisitive under Mr. Krzanich. He built out Intel's business in data-center servers, supplying companies such as Amazon.com Inc. and Microsoft Corp. that are spending billions annually on cloud-computing facilities. A big chunk of that growth came from Intel's $16.7 billion deal for Altera Corp. in 2015 -- the company's biggest-ever acquisition.

Mr. Krzanich followed up his Altera buy with a big bet on the booming market for automotive-vehicle technology by spending $15.3 billion for Mobileye NV, a leader in sensors for assisted-driving features.

Mr. Krzanich also sought growth in others areas, beefing up Intel's position in outfitting a variety of household and industrial equipment with computing capabilities, a burgeoning business known as the Internet of Things. Intel also has made a push in the market for cellular-communications chips, replacing Qualcomm Inc. units in a portion of Apple Inc.'s iPhones, and has made inroads on 5G cellular technology.

Mr. Krzanich also pushed Intel into visibly high-profile areas such as augmented-reality headsets and competitive gaming known as esports. Some of these efforts fell short; Intel, for instance, shut down several products designed for wearable computing, such as smartwatches.

Since being named CEO, Intel's share price has risen 123%, outpacing the S&P 500 but underperforming the PHLX Semiconductor Sector Index. Sales have grown nearly 18% between 2012 and 2018 to $62.76 billion. Last year, Intel held a 99% share of the most popular type of chips used in servers, and a 91% share of the processors found in PCs, according to Mercury Research.

--Yoree Koh and Aisha Al-Muslim contributed to this article.

Write to Jay Greene at Jay.Greene@wsj.com and Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

June 21, 2018 17:22 ET (21:22 GMT)

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