Jun. 04, 1999 (Computer Reseller News - CMP via COMTEX) -- New York - As the high-tech
industry races into a new era emphasizing communications and the Internet, the traditional PC
players are trying frantically to corral new technologies to secure their positions.
Microsoft Corp., Intel Corp., Compaq Computer Corp., Novell Inc. and Cisco Systems Inc. are
just some of the companies seeking a piece of the action by making outright acquisitions or
equity investments.
"The broad view is the shift toward a communications-based technology world and away from a
desktop computer-based technology world," said Jeff Matthews, general partner at RAM
Partners LP, a Greenwich, Conn.-based investment firm.
Among the more active companies has been Redmond, Wash.-based Microsoft, which not only
has substantial cash to spend, but the most to lose by staying put, analysts said.
Microsoft executives insist they are not trying to become cable or telecom providers, but each
of its investments has had a strategic payoff for Microsoft's software, operating systems and
Web-based content products such as the Microsoft Network.
Last month, the software company purchased a $5 billion slice of AT&T Corp., a deal that
guaranteed an increase in the number of Windows CE-powered set-top boxes that the cable
and telecom giant will deploy. Microsoft last month also invested $600-million in Nextel
Communications Inc., which helped cement plans to deliver wireless access to the Microsoft
Network portal.
Critics have said Microsoft is "buying customers," while other industry analysts said the
company has identified market shifts and aggresively is positioning itself to take advantage.
"They definitely want to use their cash reserves," said Christopher Galvin, analyst at Hambrecht
& Quist Inc., San Francisco. "They're not getting any credit for having cash on the balance
sheet. They're better off making investments for good returns and also investments that provide
additional leverage for their product portfolio."
But some of Microsoft's moves, such as the AT&T deal, could backfire, Matthews said. "It's a
poor strategy because the market ultimately decides what it wants. You can't bribe your way
in," he said.
Matthews points to Cisco's strategy as a good model to follow. "They have been buying every
piece of hardware they need to make the transition," he said. While some companies are
making many investments in many areas, San Jose, Calif.-based Cisco is going after only the
pieces it needs and is buying them outright, he said.
Meanwhile, for companies receiving the cash infusions, the investments could mean the
difference between thriving and dying.
For example, E-Stamp Corp. believes investments from Microsoft and Compaq, Houston, give
its online postage solution a better chance in the market. Microsoft and Compaq were among a
handful of companies that took part in a $16 million equity investment in E-Stamp. "We want to
align ourselves with leaders because we think it will help us in the distribution channel," said
Justin Thomas, director of strategy and planning at E-Stamp, Palo Alto, Calif.
In addition, Novell, Provo, Utah, put $50 million into its Internet Equity Fund in 1997 in an effort
to buttress the range of applications tapping into Novell Directory Services (NDS). Since then,
the company has taken equity investments in nine firms and acquired another.
"[This] year directories in the Internet that manage relationships and security and identity will
become probably the most important factor," said Chris Stone, Novell senior vice president of
strategy. "[It] will be the year we have to prove ourselves."
Meanwhile, Intel, Santa Clara, Calif., has one of the largest corporate venture investing
programs in the technology industry, with a portfolio of some 250 companies valued at about $3
billion. Intel usually takes small, minority stakes of less than $10 million each in companies.
Intel executives have said the primary reason for investing is strategic-to boost sales of PC
products by creating new uses for PCs. Areas where Intel has invested include enterprise
computing, the Internet and high-speed networking. On a larger scale, Intel last week acquired
computer-telephony components maker Dialogic Corp. for $780 million. (See related story on
page 214.)
Although its investment goal is strategic, Intel executives said they also look to get a financial
return. The company does not disclose its results, but Alex Wong, technical assistant to Leslie
Valdasz, who heads Intel's strategic investments, said Intel has made many investments in
Internet companies, many of which have gone public.
In addition to its investments in outside companies, Intel invests internally in employee
ventures. The company budgeted $50 million this year for this fund.
Kelly Spang, analyst at Technology Business Research, Hampton, N.H., said by funding
employee's ideas, Intel "could be harvesting some really great venture ideas that in the past
may have gone to a small start-up in Silicon Valley."
Marcia Savage, Lee Copeland & Stuart Glascock contributed to this
story.
Coralling New Investments
Intel: Proxim Inc., Lernout & Hauspie Speech Products and Persistence Software Inc.
Microsoft: Nextel Communications, Rhythms and Banyan Systems
Novell: Red Hat Software Inc., Encommerce Inc. and Evergreen Internet
Inc.
Compaq: Shopping.com, Virage Inc. and RoadRunner |
