Intel Capital: Lack of co-investors slows effort

Investments by Intel Capital, the venture capital program of Intel, dipped last year -- not because of a shortage of good deals, or lack of funds at Intel Capital, but because the company often could not find other investors to join it in investing in startups, according to an Intel Capital executive.

"In cases where we could not find co-investors that were willing to put in the money, we could have perhaps invested all of it ourselves, but that would get us involved too closely in the ownership and management of the companies we invested in," said Claude Leglise, vice president and director of worldwide geographies sector at Intel Capital.

Intel Capital made about 100 investments in 2002 for a total of US$200 million, down from about 175 investments for a total of about $350 million in the previous year.

"Our investments were not limited by the size of our checkbook, but strictly by the number of opportunities," Leglise said.

In 2000, investments by Intel Capital amounted to $1.4 billion. Of the investments in 2002, Asia and the U.S. each accounted for about 40 percent of the investment by value, according to Leglise.

Intel Capital invests in companies that develop technologies or offer services that can help boost Intel sales.

"As a company, Intel wants to sell more silicon, so we invest money in companies that will complement what we do, with the very specific objective of growing the market faster," Leglise said. "So you will see comparatively fewer investments by us in companies doing silicon, and more in companies offering software and services and things related to what we produce."

Last year the fund invested in a company in Japan that is developing technology to store one terabyte of data on a CD-ROM.

Intel Capital thinks this is a good time for new investments, despite uncertainties about a war with Iraq and the continued slowdown in the telecom industry, according to Leglise. One of the drivers for new investment opportunities is growth in sales of computers to the home.

"In Beijing, Shanghai, and Shenzhen, the penetration of home PCs is already comparable to that in Munich, Paris, or London, which means that there are these big cities where people are already wired and connected, that are consuming and adopting computers," Leglise said. This presents opportunities for sales of computers, networks and digital media equipment, and tools to connect them together, he added.

Intel Capital also expects that over the next 18 to 24 months enterprise customers will replace PCs running Microsoft's Windows 95 or Windows 98 operating systems. The replacement of PCs will translate into an opportunity not only for Intel but also for software developers that develop new software that takes advantage of the performance of the new PCs, according to Leglise.

Another opportunity area that Intel Capital has identified is wireless, particularly wireless LANs based on the IEEE802.11 standard. For instance, last month the fund invested in Pronto Networks Inc. of Pleasanton, California, a developer of wireless systems for hotspot network operators, as part of its strategy to invest in companies that can accelerate deployment and usage of 802.11-based wireless LANs to help boost sales of its Centrino mobile processor platform.

Although the slowdown in the telecom industry continues, affecting the business of telecom equipment makers, the number of IP (Internet Protocol) packets going around the world is increasing rapidly as more people are using the Internet, so that at some point the networks will have to be upgraded, according to Leglise.

Like the computer industry, the telecom industry too is moving to a model where instead of an equipment company building everything including the silicon, boards, and software, different companies will deliver different pieces of the puzzle, Leglise added.

"This is evidently an opportunity for Intel and a whole lot of companies including startups," he said.

Intel has identified China, India, Russia, Brazil, and Mexico as the five fastest growing markets for communications and computing products.

"Growth in these markets is coming from a combination of demographics, relatively low density of computing and communications equipment, and relatively favorable economic environments," Leglise said. "These five countries contributed close to nothing to Intel five years ago. They now account for 17 percent of our revenue."

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