Intel Investments Seed Its Future

By John Makulowich, Senior WriterThe name Intel is seldom linked to venture capital. But the Santa Clara, Calif., computer chip maker's strategic portfolio tops $3 billion and includes investments in nearly 550 companies worldwide."Right now, about 15 percent of our investments are outside the United States. And that percentage is growing," said Les Vadasz, the company's No. 3 executive who calls the shots on the Intel portfolio. "We are looking at developing markets overseas."Currently, about 60 percent of Intel revenue comes from beyond U.S. borders. Why does the company, which gave the first microprocessor to the world in 1971, invest in so many companies? It is simple, said Vadasz, Intel's senior vice president and director of corporate business development. The strategic intent is to expand the industry and enhance capabilities to exploit its hardware."On the industry side, we seek new uses, new users and the removal of road blocks. In capability, we want improved products, faster time to market and efficient manufacturing," said Vadasz.Intel divides its industry investments into three areas: technologies, users and geographies. Technologies include Internet, broadband, networking and new media, while user segments cover home, displays, mobile and enterprise. The geographies span the globe, from the United States to Europe, the Asia Pacific region and Latin America.Last year alone, Intel invested more than $800 million in more than 100 companies in diverse locales such as China (eight investments, including Web companies), Europe, India, Israel and Taiwan. The purpose is "to enable the local market to develop for computing technology," Vadasz said. The company receives 2,000 to 3,000 proposals each year from entrepreneurs seeking capital. Intel's largest investments are in CMGI Inc. ($368 million), Covad Communications Group ($162 million) and Microsoft Corp. ($184 million), according to a company report to the Securities and Exchange Commission for the quarter that ended March 31.CMGI, a holding company with operating units involved in Internet services and Web software, has proven an excellent investment. Shares in the Andover, Mass., company have risen in the past year from $8.31 a share to $103.63 a share as of May 28. Microsoft, Sumitomo and Gateway also hold minority positions in CMGI.But Intel does not always pick winners. The company's May 11 SEC filing shows it is sitting with more than 2 million shares of SystemSoft Corp. of Natick, Mass., which now trades at $0.135 per share.Intel has made other multimillion-dollar investments in the booming Internet sector. It holds shares of America Online, Broadcast.com Inc., GeoCities, Inktomi Corp., Isocor, VeriSign Inc. and Wavo Corp.And Intel has helped fuel the growth of Silicon Valley as a technology and business center, investing in local companies such as BEA Systems Inc., San Jose, Network Computing Devices Inc., Mountain View, and SCM Microsystems Inc., Los Gatos, Calif.Vadasz attributed the northern California region's success to several factors: its leadership in major information technology trends, such as electronics, semiconductors, computers, networks and the Internet; the ready availability of venture capital to fuel new companies; and the culture of risk-taking that seeks to exploit new opportunities. Other factors are the quality of living, including the caliber of the University of California at Berkeley and Stanford University, the cultural environment and the weather. He compared Silicon Valley with Boston, saying the valley was more freewheeling, not as studious, not as academically conservative and willing to take more business risk.He quoted results from the latest venture capital survey by PricewaterhouseCoopers LLP, released May 16. The quarterly Money Tree survey revealed that a record-breaking $40.20 of every $100 of U.S. venture capital was invested in the San Francisco Bay area in the first quarter. That area got $1.7 billion, a 42 percent increase over the previous quarter.However, Vadasz said, there are also Silicon Valley negatives. The cost of living is high, and traffic and air pollution are heavy. But, he said, "the most shocking element is K-12 education, which has really degraded over time. We lag in comparative test scores, school facilities, computer deployment and teachers trained in technology."In an attempt to correct the situation, Intel contributed $100 million last year to K-12 and higher education in the form of funds and equipment."We need teachers who are more proficient in the use of technology. We are starting out at the wrong end with some of our tools. We need computers in every teacher room and principals communicating through the network," said Vadasz.Looking at the changes since his arrival in the Bay area in 1968, the same year Intel was founded, he said that while there is more money available, there are not enough good ideas. An especially weak area is management skills."Lots of companies will be bought up as an extension of product lines and not go IPO, as was the case many years ago," said Vadasz. "In many cases, an IPO becomes just the next round of financing."In fact, while observing that disruptive technology creates many opportunities and that Silicon Valley is riding the Internet wave, he is "not convinced at all that the 'frenzy' is sustainable."