By Stephen Nellis and Svea Herbst-Bayliss

(Reuters) – Intel Corp said on Wednesday it would replace Chief Executive Officer Bob Swan with VMware Inc CEO Pat Gelsinger, who started his career at Intel, to help the company navigate its way out of a manufacturing crisis.

For decades the world leader in chip-making technology, Intel has lost its manufacturing edge in recent years to Taiwanese and Korean rivals, and is now debating whether to have others make some of its flagship central processor unit chips, or CPUs, slated for release in 2023.

Gelsinger, who started his career at Intel at 18 and spent 30 years at the company, was among the most credible candidates to take the company’s helm, analysts said, and shares rose more than 8% in morning trading. He joined Intel before college, went on to have a storied career at EMC and VMware, and will return to a company at a historic crossroads.

Activist investor Third Point LLC last month sent Intel’s board a letter asking it to consider dividing its chip design and manufacturing operations, given that rivals Advanced Micro Devices, Qualcomm and Nvidia Corp outsource their manufacturing work to specialists such as Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co Ltd.

Gelsinger has confronted similar transitions as the chief of VMware since 2012. He successfully guided the company, whose software helps companies squeeze more work out of data center servers, from an era of privately owned data centers to public cloud providers, in part by striking a seminal deal with Amazon.com’s Amazon Web Services and keeping abreast of open-source software trends that swept the industry.

Gelsinger, who will take the helm at Intel on Feb. 15, led more than a dozen microprocessor programs at Intel and became its first chief technology officer. He started there before college, attending Santa Clara University and Stanford University while also working at Intel.

He is a prominent Christian in the largely secular world of Silicon Valley and has written a book on balancing his faith, family and career.

In a letter to Intel’s employees, Gelsinger likened the move to coming “home.”

“Having begun my career at Intel and learned at the feet of Grove, Noyce and Moore, it’s my privilege and honor to return in this leadership capacity,” Gelsinger said in a statement, referring to the early leaders of Intel. “I have tremendous regard for the company’s rich history and powerful technologies that have created the world’s digital infrastructure.”

Analysts expect Intel to strike a partnership with another major chip manufacturer as part of its plan to address its manufacturing challenges.

With a company veteran at the helm and recent legislation passed in the United States aimed at retaining advanced domestic semiconductor manufacturing, Intel’s “odds of success are now greatly improved,” Evercore ISI analyst C.J. Muse said in a note to clients.

Sources familiar with the matter told Reuters that Gelsinger had turned down the top Intel job before, and it was not immediately clear what had changed his mind.

Gelsinger will face years of missteps in Intel’s manufacturing business. Under previous Chief Executive Brian Krzanich, Intel sprawled into new fields such as modem chips without success, while blowing three years of deadlines for its 10-nanometer chipmaking process, allowing rivals such as TSMC and Samsung to gain a lead that some analysts believe is now all but insurmountable.

Third Point’s Dan Loeb had sent a letter to Intel’s board of directors late last month urging the company to rein in an outflow of engineers to rival firms, though he stopped short of blaming Swan for the company’s troubles.

On Jan. 4, Swan met with Third Point Chief Executive Dan Loeb and Intel Chairman Omar Ishrak, according to a person familiar with the matter. Loeb pushed Intel to find new executives and potential new board members and held at least one followup meeting.

Intel on Wednesday said it expects to beat its financial forecast for the fourth quarter of 2020 and that it has made “strong progress” in addressing issues with its 7-nanometer chip manufacturing technology.

“From a credibility standpoint, he’s great – he’s probably the one at the top of most people’s list for who they would want to see,” Stacy Rasgon, an analyst at Bernstein, said of Gelsinger’s appointment.

Swan, a former chief financial officer from eBay, had served as Intel’s finance chief and was named its interim CEO when Brian Krzanich resigned in June 2018, later getting the permanent job.

(Reporting by Reporting by Svea Herbst-Bayliss in Boston, Stephen Nellis in San Francisco, Jessic DiNapoli in New York, and Munsif Vengattil in Bengaluru; Editing by Maju Samuel, Bernadette Baum and Peter Henderson)

---