This article from the WSJ is from April 14, but I think it's interesting that even AB shows a little reverence of the Intel's big stick:
Corporate Focus:
Intel Invests to Push Beyond the Usual Borders of PCs
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Chip Maker Bets New Technologies
Will Lift Demand for Its Own Products
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By Dean Takahashi
Staff Reporter of The Wall Street Journal
Leslie Vadasz recently had the audacity to ask his boss, Intel Corp. Chief Executive Officer Andrew S. Grove, for a $50 million handout.
Mr. Vadasz, a vice president who heads Intel's investments, wanted to use the money to invest in other companies. But Mr. Grove instructed him, "Come back when you can tell me how you're going to invest $1 billion."
The episode bespeaks Mr. Grove's ambitious efforts to push Intel beyond the traditional borders of the personal-computer business, where it has established a lucrative near-monopoly on microprocessors. But now Intel is sticking its fingers into all sorts of pies, investing in start-ups and other companies that make everything from computer-networking gear and graphics software to video phones and Internet games.
The ultimate goal: to nurture new technologies that will make the computer more appealing and useful, expanding the number of people using PCs -- and the demand for Intel chips. In the past two years, Intel has invested in more than 50 companies that have an overall market value of at least $500 million. It is spending at least $500 million a year on things that don't involve chip design or anufacturing. On average, Intel has been making two investments every week.
"We compete with Intel on just about every deal that we do," says one Silicon Valley venture capitalist. Intel's massive investments scare some in the industry. Intel's market clout -- its chips power more than 80% of the world's computers -- already is regarded by many computer executives as excessive. Intel's first-quarter results, expected today, are likely to provide fresh evidence of its domination: Analysts expect it to earn $2.06 a share, up from $1.02 last year.
The new fear is that Intel could bury rivals in the areas into which its pouring investments, too. There's precedent: Several years ago, Intel expanded into core-logic-chip sets (support chips for microprocessors) and gobbled up 85% of that business within two years, battering logic-chip set companies such as VLSI Technology Inc. and Opti Inc.
"They've got an incredible ability to take the value out of a market and suck it into Intel," said Alexandre Balkanski, chief executive officer of C-Cube Microsystems Inc., a chip-design company in Milpitas, Calif. "They commoditize everything except the microprocessor itself."
Craig Barrett, Intel's chief operating officer, responds that his company's investments usually benefit the whole industry, by promoting the acceptance and development of new technologies.
And some rivals, looking at the bright side, see a chance that Intel's octopus-like investment strategy might distract it from its core microprocessor business and expose it to inroads from chip rivals like Advanced Micro Devices Inc. and Cyrix Corp. Intel's stock has slipped 13% from a late February close of $149.875. On the Nasdaq Stock Market Friday, Intel shares closed at $130.50, down $6.75, a 4.9% drop from the previous session's close.
The stock's decline has come partly on investor fears that a new rival chip from AMD could eat into Intel's market share. Intel is expected to cut chip prices 25% to 30% at the end of this month, due to competition from AMD and Cyrix.
Moreover, Intel's track record as a venture capitalist is mixed to date. Intel sank millions into developing video phones, which chew up enormous amounts of computing power and could create demand for faster and faster chips. But that market still hasn't materialized because of the slow transfer speeds for video images over ordinary phone lines. Intel investments in a maker of chips for hand-held computers and in American Cybercast Inc., a high-profile Web site, also flopped.
"There will be some like that which don't work out," Mr. Vadasz said. "But that is how you get insight." Mr. Grove vows that Intel will never become like other big conglomerates, which he says are a "mile wide and an inch deep." In any case, Intel has no intention of slowing its investment pace.
Mr. Vadasz has an army of investment analysts constantly evaluating opportunities to either expand Intel's markets or to expand its own sales.
"We keep the PC moving in a certain direction, otherwise there would be chaos," said Mr. Vadasz. "When something is developing too slowly and could hurt the PC's growth, then we step in with our financial muscle."
Intel's recent deals include buying a 4.5% stake in CNET, an Internet news site and TV broadcaster. It also has invested in Palace Inc., which creates virtual communities on the Internet. In the computer-networking business, Intel acquired Case Technology Ltd. and bought a minority investment in Xircom Inc. for $52.3 million.
In three-dimensional graphics, Intel has joint ventures with Lockheed Martin Corp. and Chips & Technologies Inc. to create a chip that will produce superior 3-D animations on the PC. Intel also bought a minority stake in Samsung Electronics Co.'s new factory in Texas for making memory chips, a business that the Japanese forced Intel to leave more than a decade ago. And it took a minority stake in European Satellite Multimedia Services SA, a European satellite-communications system. Entering a New Business "The satellite investment is our first in a service business," Mr. Vadasz said. "You will see more of that because we desperately need the communications companies to move faster in connecting high-speed links to the PC."
Intel can move swiftly when it invests. Osman Kent, chief executive officer of 3dlabs Inc. in San Jose, Calif., first met with one of Intel's business-development managers at a 3-D graphics show in New Orleans last August. Within three months, Intel had invested $2 million for a 2% stake in 3dlabs, a maker of specialty graphics chips that has since gone public. Intel's stake is now worth $26 a share, vs. its investment price of $9.38 a share.
Intel can also take a long-term view; it did so recently by marshaling the resources of the entire software industry to produce dozens of titles to run on its new MMX Pentium chips, which do a better job of
processing video, sound and pictures. To get consumers to buy the new chips, Intel had to motivate software developers to get started on MMX titles ranging from computer games to desktop-publishing software as early as 18 months before the MMX chips were launched last January. Thanks to tens of millions of dollars in Intel subsidies, developers were ready with numerous titles on the first day of the launch; by comparison, a similar effort by Nintendo Ltd. yielded only three titles at the launch of the Nintendo 64 video-game system.
Intel displayed its ability to rattle its new markets in its recent push into computer networking, which put industry leader 3Com Corp. on the defensive. Intel started making networking cards, a main 3Com product, in 1995; because of its strength in chips, a major component of the cards, Intel was able to slash prices 40% on its cards earlier this year. 3Com stock plunged, and the company later acquired U.S. Robotics in a stock swap valued at $6.6 billion to help shore up its product line.
Being an Intel partner carries risks of its own. For instance, 3-D companies taking investments from Intel may soon find that they're in direct competition with their benefactor as it launches its own in-house 3-D graphics technology. Intel is developing new data freeways within the PC to ensure that 3-D graphics can be rapidly displayed on monitors.
There are no guarantees Intel will triumph in the 3-D graphics-chip business. Indeed, several entrenched graphics-chip companies are already selling millions of 3-D chips, while Intel isn't expected to hit the market until the second half of the year at the earliest.
But increasingly, Intel is regarded as a threat in the emerging new world of computer content as old media such as news magazines collide with new electronic-media ventures supported by Intel.
"Our future competitors will be Intel and Microsoft [Corp.]," Gerald Levin, chairman of cable-TV and publishing giant Time Warner Inc., said recently in a speech. "They will use their financial base to into the content business." |
