Reporters are tip-toeing around news that Intel Corporation (NASDAQ:INTC) CEO Brian Krzanich sold all the shares he could after learning of problems with the company’s chips going back 20 years.
My view is different. It doesn’t just raise eyebrows, as CNN says. It doesn’t just raise questions, as Ars Technica reports. Jim Cramer said on TV Jan. 5 he trusts Krzanich. I don’t.
In my view, this is more than a firing offense. This is the kind of thing people go to jail for. It’s what Martha Stewart went to jail for. If anything, this case is more egregious, and more obvious.
It’s true that firing Krzanich, who became CEO in 2013 would leave INTC without an obvious successor, at a time when Samsung has overtaken it as the world’s biggest chip supplier, and when it faces a massive task of rebuilding its reputation.
But if INTC’s 12-member board doesn’t fire Krzanich, right now, I personally believe it will be complicit in a crime.
The Facts Seem Clear for INTC
As the S-4 report filed on the sales makes clear, Krzanich sold about 900,000 shares of Intel stock on Nov. 29, including stock options he exercised, then flipped. He retained only 250,000 shares, as required by his employment contract. He scheduled those sales a month ahead of time, on Oct. 30. This was long after INTC learned it had a problem, and long before the problem became public.
The bugs, dubbed Meltdown and Spectre, were found by researchers at Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) in June and the company has been scrambling since to get patches ready before the news leaked.
The window of vulnerability to a bug rises sharply once it’s announced, peaks when it’s patched and then starts to decline as users install the patch. By keeping the bugs secret until patches were ready, Intel and its partners were acting responsibly.
The ImClone Precedent
But from a corporate standpoint, this was secret, material knowledge that was bound to send the INTC stock price tumbling once it was revealed. The shares fell by 3.85% after InvestorPlace contributor Vince Martin explained the situation and legal action to recoup those losses is already underway.
Martha Stewart went to jail for five months because she acted on a tip from her broker about problems at ImClone, a stock she owned. The case drew heavy publicity, but what many people forget is that ImClone’s founder eventually pled guilty to several charges, including securities fraud and he was sentenced to over seven years in jail.
The ImClone case took about one year to play out. That’s the kind of thing INTC stock is now facing.
It’s not like Krzanich has been a world beater as CEO for Intel. Since he took his present position in May 2013, INTC stock is up over 80%, but the Nasdaq Composite is up 105%. Intel shares currently sell for a price-to-earnings multiple of just 15.5, despite a dividend yielding 2.45%. By comparison Texas Instruments Incorporated (NASDAQ:TXN) sells at a P/E of 24.6.
One more point. Krzanich’ sales came at almost precisely the price INTC stock was due to open at Jan. 5.
Bottom Line on INTC Stock
For investors, the short-term picture may not be so bad. Intel stock is so cheap right now that many analysts are suggesting you buy the dip. The entire semiconductor complex, represented by ETFs like the Market Vectors Semiconductor ETF (MUTF:SMH), which I wrote about recently, is on fire in a good way.
Over the next six months to a year, however, I think this is a huge deal. Intel has become a crisis company. INTC stock needs strong leadership to regain lost ground. It’s not going to get that from a CEO hobbled by scandal. I sold my own shares of Intel in June, before its recent run-up, and I won’t get back in until this scandal is over.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.