On Wednesday, Intel named microprocessor chief Paul Otellini as its new president and chief operating officer. A 28-year veteran of Intel, Otellini was executive vice president and general manager of the Intel Architecture Group, which is responsible for the company's $21 billion microprocessor and chip set businesses (see Jan. 16 story).

As reported, Otellini assumes the title of president from Craig Barrett, who will remain CEO of the Santa Clara-based chip giant. In addition, Otellini will join Barrett in a new, two-person "executive office" at Intel.

In his new role, Otellini will be responsible for overseeing Intel's internal operations, focusing on the development and delivery of new products and technologies, and the driving the efficiency of the company's business. Meanwhile, Barrett will still in charge of corporate strategy and long-range planning, according to Intel.

For some time, Otellini, a soft-spoken executive, has been a rising star at Intel, according to company observers. With this week's announcement, it is now clear that Otellini is being groomed to succeed Barrett and take the CEO post at Intel at some point in the future, said many analysts.

Barrett, 62, has no plans to step down from his current post, according to Intel. The long-time Intel executive became the company's fourth president in 1997, and a year later, was named CEO.

Otellini's appointment is significant for other reasons. While Barrett and his predecessors boast technical backgrounds, Otellini represents the first top-level executive at Intel that comes from the "non-technical" ranks.

Before joining Intel in 1974, Otellini received a B.A. in Economics from the University of San Francisco in 1972, and an M.B.A. from the University of California at Berkeley in 1974.

But still, analysts applauded Otellini's appointment. He is considered by many as a seasoned executive, who understands both the technology and business aspects of the semiconductor industry, said Mark Edelstone, an analyst at Morgan Stanley in San Francisco.

Otellini's non-technical background will not hurt Intel or its future strategy, Edelstone said. "There is no reason why Intel needs to appoint a EE to the president and COO post," he said. "There is no shortage of technical people at Intel."

Edelstone also believes that Otellini's appointment will not alter Intel's strategy. "I don't think Intel's strategy will change at all," he said.

In fact, the Barrett-Otellini tandem could prove to be a powerful one-two punch. "Barrett will focus on the manufacturing and technical issues at Intel," Edelstone maintained. "Otellini will focus on the sales and marketing issues," he suggested.

Other analysts believe that Otellini's stock rose over the last year, especially after the company core microprocessor business made somewhat of a miraculous recovery from a technical point of view.

Last year, Intel's fortunes looked dim when the company rolled out its new, flagship processor line, dubbed the Pentium 4 processor. At the time, the Pentium 4 device only supported Rambus Inc.'s RDRAM memory architecture, which drew criticism from Intel's PC customers and DRAM makers alike, according to analysts.

Over the last year, Intel implemented a new strategy with the Pentium 4. It moved to support SDRAM, and more recently, double-data-rate (DDR) SDRAM for the Pentium 4--a move that has apparently turned the microprocessor from a "niche" product into a mainstream workhorse chip, according to analysts.

While Intel's processor line is shaping up, the company and its new management team still faces some major challenges in 2002.

One of those challenges is to keep one step ahead of its archrival in the microprocessor business--Advanced Micro Devices Inc. AMD has fallen behind Intel in terms of microprocessor performance, but the Sunnyvale, Calif.-based company claims it is still gaining market share in the processor market--at the expense of Intel.

Besides AMD, Intel faces other major problems, notably the slow decay in the PC business. The PC industry has been slowing for some time, but there are some ominous signs in 2002, according to analysts.

Worldwide PC shipments fell by 4.6% in 2001 over 2000, and the personal computer market is only expected to grow by 4% in 2002, according to a new forecast released by Dataquest Inc. of San Jose (see Jan 17 story ).

Intel itself is also off to a slow start in 2002. Intel on Tuesday posted a 7% sequential increase in revenues to $7.0 billion for the fourth quarter of 2001, compared to $6.5 billion in Q3. Intel's net income, excluding acquisition-related costs, also beat Wall Street's estimates at $998 million in the fourth quarter.

But Intel said it now expects revenues in the first quarter of 2002 to be sequentially flat-to-down 8.6% from Q4 because of seasonally weaker market conditions. The Q1 revenues are expected to be in a range of $6.4-to-$7.0 billion.

But perhaps the biggest problem has been the company's ongoing efforts to diversify from its core microprocessor market. While Intel has expanded into wireless chips, wireline ICs and other non-MPU businesses, the company has little or nothing to show for it.

Sales in Intel's Architecture Group--the company's main microprocessor and chip set businesses--grew 7.4% to $5.79 billion in Q4 from $5.39 billion in the prior quarter.

Intel's Communications Group posted a 1.7% sequential increase in sales to $590 million in the fourth quarter compared $580 million in Q3. The Communications Group's operating loss was narrowed to $129 million in the fourth quarter vs. a loss $218 million in Q3.

Revenues in Intel's Wireless Communications and Computing Group--mostly flash memories--were up 1.8% to $518 million in Q4 compared to $509 million in Q3. The group's operating loss was cut to $20 million in the fourth quarter vs. a loss of $59 million in Q3.

While Intel is still wrestling with its non-processor businesses, the company's overall prospects look positive for 2002, according to Edlestone. "I think Intel is well positioned going into the future," he added.