Intel named longtime employee Paul Otellini as chief executive officer, replacing Craig Barrett, effective at the chip giant's annual meeting on May

Otellini, 54, currently serves as president and chief operating officer. Barrett, 65, will succeed Grove as chairman of the board of the world's biggest chip maker.

Grove will remain as a senior advisor to the board and senior management.

"Craig and Paul are the right team at the right time for Intel," said Grove. "We're exceptionally fortunate to have them at the helm."

Intel shares closed up 1.4 percent at 23.17 after the announcement.

Standard and Poor's analyst Amrit Tewary said the news had been anticipated by the market for a couple of years.

But he said the shift may help Intel overcome some recent problems with matching inventory and demand.

"Otellini had in the past high profile positions with a lot of responsibilities at Intel, he has financial experience, marketing experience," Tewary said.

"His deep and broad (knowledge of the company) will help make understand what is possible and what is not possible in terms of strategy, will help to understand the product cycle."

Grove will be the last of Intel's three founders to leave the chip maker when he retires from his chairman's post in May.

The moves turn a page at Intel and for Grove, who with fellow engineers Robert Noyce and Gordon Moore defected from Fairchild Semiconductor in 1968 to found Intel with a plan to make computer memory chips.

Grove and his partners created a corporate culture focused on innovation, which turned Intel into a 30 billion-dollar-a-year company that dominates the semiconductor business more than three decades after its founding.

The founding trio's strike-out-on-your own mentality also helped spark an entrepreneurial revolution that made Silicon Valley the center of the world's technology industry, home to firms like Apple Computer, Cisco Systems and Sun Microsystems.

"Andy was a role model around the world, more than he knew," said Vinod Khosla, a partner with the Menlo Park venture firm Kleiner Perkins Caufield and Byers and the founding chief executive of Sun Micro.

When Khosla was a 15-year-old budding engineer in India, planning to someday start his own company, Grove "was an inspiration," he said. "He developed clear, strong values about how to build products and run a company, and he stuck with them," Khosla said.

"He had a laser-like focus on reality and didn't get distracted by hype."

After focusing on memory chips for more than a decade, in the mid-1980s the company -- at Grove's urging -- moved into making the microprocessors that run personal computers. By the early 1990s, Intel's Pentium chip line was the standard for PCs made by Hewlett-Packard, Dell and others.

It was under Grove's tenure as Intel's CEO from 1987 to 1998 that the company went from being well-known among technology engineers to an icon of American culture.

Grove, who was born in Budapest, Hungary, in 1936, earned his first degree from City College of New York in 1960 and a doctorate in engineering from the University of California at Berkeley in 1963.

Time Magazine named him Man of the Year in 1997.

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