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Intel CEO Resigns After Probe Of Improper Relationship With Staffer

Intel (INTC) Chief Executive Brian Krzanich resigned Thursday as CEO and board member after an investigation revealed that he had an improper relationship with an Intel employee. The board of directors named Chief Financial Officer Robert Swan as interim CEO, effective immediately.

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The chipmaker also announced that it expects its second-quarter revenue and adjusted earnings per share to exceed its prior guidance. Plus, it believes 2018 will be a record year for the Santa Clara, Calif.-based company.

The board said Krzanich's past consensual relationship with an Intel employee violated the company's nonfraternization policy, which applies to all managers.

"The board believes strongly in Intel's strategy and we are confident in Bob Swan's ability to lead the company as we conduct a robust search for our next CEO," Intel Chairman Andy Bryant said in a news release. "Bob has been instrumental to the development and execution of Intel's strategy, and we know the company will continue to smoothly execute. We appreciate Brian's many contributions to Intel."

Intel shares fell 2.4% to close at 52.19 on the stock market today. Earlier in the session, the stock rose as much as 2%. It fell below its 50-day moving average, a key support level, on Monday. It hit an 18-year high of 57.60 on June 4.

Raised Quarterly Guidance

Intel now expects to earn an adjusted 99 cents a share on revenue of $16.9 billion in the second quarter. That would translate to year-over-year gains of 38% in earnings per share and 15% in sales. Wall Street was modeling 85 cents in earnings per share and $16.29 billion in revenue.

"With accelerating data-centric revenue, the company is off to an excellent start in the first half of the year and expects 2018 to be another record year," Intel said.

Intel will report second-quarter results and give its updated outlook on July 26.

Wall Street Reacts To CEO Resignation

The CEO resignation offsets the positive earnings pre-announcement, Needham analyst Quinn Bolton said in a report.

"We believe Mr. Krzanich was the driving force behind Intel's transition to a data-centric business," he said. The resignation comes at a time when Intel faces increased competition in server processors from Advanced Micro Devices (AMD), Bolton said.

Bolton reiterated his buy rating on Intel, but cut his price target to 60 from 62.

RBC Capital Markets analyst Amit Daryanani thinks the second-quarter pre-announcement outweighs the CEO change. The sales and earnings upside bode well for data center and memory chip sales, he said in a report.

"We consider the pre-announcement a positive; however, the management change may cause some short-term turbulence," Daryanani said. He maintained his sector perform rating on Intel stock but upped his price target to 60 from 58.

Intel is in good hands with Swan at the helm, Evercore ISI analyst C.J. Muse said. But Intel faces a lot of challenges.

In addition to rising competition from AMD in servers, Intel must confront a changing computer landscape with Big Data and artificial intelligence, he said. Customers are shifting to graphics processing units from Nvidia (NVDA) to handle large data processing needs, Muse said.

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