The board also elected software honcho Renée James, 48, to be president of Intel. Her appointment signaled to some that Intel, while likely intending to stick with its formula of intense investment to keep it ahead in the microchip technology game, is willing to explore new growth areas.

Intel’s shares fell 1.3 percent in early trading but later recovered. The company said last November that it might go external for the next CEO, raising hopes that it might find someone to shake it out of recent doldrums.

Seen as a frontrunner for the job since November, Krzanich inherits a company with margins of almost 60 percent that has all but extinguished rival Advanced Micro Devices Inc in the past few years and is now the dominant maker of microprocessors for computers and servers.

But the company is in danger of finding itself sidelined as mobile devices such as tablets and ever more powerful smartphones accelerate a contraction of the personal computer market. The majority of gadgets today run processors based on rival ARM Holdings Plc’s power-saving chip architecture.

“An external candidate might have been a better choice – with no negative reflection on Brian – simply because of the juncture Intel is at with what’s happening in the PC market and the need to take major action outside of PCs,” said Cody Acree, an analyst at Williams Financial Group.

“Brian may very well come in and make those same very difficult dramatic choices, but it’s less likely.”

Krzanich, 52, has worked at Intel since 1982 and will take on the top job at the company’s annual shareholder meeting on May 16, replacing Paul Otellini.

James, who in 2011 spearheaded Intel’s $7.7 billion acquisition of No. 2 security software firm McAfee Inc, ran software product and service sales as well as a team of engineers focused on improving the performance of Microsoft Corp’s Windows 8 and Google Inc’s Android software when run on the company’s microchips.

Her elevation “puts emphasis on the many businesses Intel is in beyond just chips. This is an important promotion, and it clearly signals the board wants to make Intel a much broader company,” said Jack Gold, who runs research outfit Jack Gold Associates.

“Longer term, both Krzanich and James could bring that new reality into clearer focus for Intel and make them more competitive in a rapidly changing market.”

SMALL CHANGE

Intel Chairman Andy Bryant said Krzanich is capable of effecting a transformational move.

A chemical engineer by training who went to school in Northern California, he started with Intel in New Mexico as a process engineer before moving on to a series of factory management positions. He holds a patent for semiconductor processing and sits on the board of an industry association.

“You’ll see a fairly dramatic change over a period of time,” Bryant told Reuters in an interview. “If you look at Intel’s past, with every CEO we’ve had that.”

“(Andy) Grove replaced (Gordon) Moore and we got the PC. (Craig) Barrett replaced Grove and we got the communications, which is a foundation of the cellphones we have today. Otellini replaced Barrett – servers didn’t exist in those days, now we have the enterprise business, that’s a 10-plus billion dollar business growing at double digits.”

Intel announced in November that it was looking for a new CEO as Otellini announced plans to retire.

James worked with Krzanich to develop the strategic vision for Intel that he pitched to the board, Bryant said.

“They formed a partnership through the last few months that has blossomed into an extremely powerful pair,” he said.

The Santa Clara, California, company came under fire during Otellini’s tenure for missing out on the mobile revolution, while underestimating the scale of the eventual drop-off in personal computer demand. The company, which once said emerging markets could offset a dropoff in developed-world demand, orchestrated a push on pricey “Ultrabook” laptops that has so far failed to excite consumers.

Against that backdrop, Intel surprised investors in November by suggesting it could break with tradition and look outside its ranks for a new chief. But analysts said they were not surprised that the board settled on Krzanich.

“I’m not hugely surprised. He was probably in most investors’ minds a front runner,” said Stacy Rasgon, an analyst at Bernstein Research.

“The strategy that they are on embarking on, the way they are trying to go really involves leveraging their manufacturing technology assets, and he’s the guy.”

Last month, Intel warned that current-quarter revenue would fall as much as 8 percent, given the drop in PC sales. The company affirmed its full-year revenue growth target, but analysts think that forecast will be hard to hit.

Intel set Krzanich’s 2013 compensation package at $10 million including base pay of $1 million, an annual incentive cash target of $2.5 million and equity awards for 2013 with a grant date fair value of $6.5 million.

Intel shares were up 4 cents at $24.03 on Thursday afternoon, off an earlier low at $23.67. DM

Photo: Intel Chief Operating Officer Brian Krzanich is seen during an interview with Reuters at Intel headquarters in Santa Clara, California March 13, 2012. Intel’s manufacturing whiz and new COO Krzanich says he has fine-tuned his supply chain to meet expected demand for chips for smartphones and tablets. To match Interview INTEL/KRZANICH REUTERS/Robert Galbraith