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Intel to scale back on venture capital investments
By Tom Foremski in San Francisco
Published: February 28 2001 20:14GMT | Last Updated: February 28 2001 20:51GMT
Intel, the world's largest chipmaker and the biggest US corporate venture capital investor, warned on Wednesday that the retreat of venture capitalists from Silicon Valley would probably hit its level of investments this year.
Les Vadez, head of Intel Capital, a fund valued at nearly $4bn, said: "The venture capital community has slowed down tremendously, and since we partner with venture capital firms in our investments, we won't be able to invest in as many companies as we would like to."
Last year Intel realised investment gains of about $3.8bn, and in 1999 about $800m.
In 2000 it invested about $1.3bn, but this year the level is likely to fall below $1bn.
Intel has more than 600 companies in its portfolio and its investments have a strong strategic focus designed to generate demand for its microprocessors, communications chips, and other semiconductors.
Mr Vadez said Intel was focusing increasingly on investments overseas and aimed to increase this exposure from 30 per cent to half its portfolio over the next few years.
But Mr Vadez criticised local laws in some countries that make it difficult for Intel to invest, and what he saw as the less sophisticated local venture capital community in some countries, including the UK.
"High-tech investment skills are best honed in the US and Silicon Valley, where there is a real infrastructure in place for venture capital investing," Mr Vadez said.
However, most independent US venture capital firms are focused on managing their current investments and are reluctant to make new investments.
Although Intel has made a large amount from its investments, its investment gains will be close to zero for its current quarter and it is unable to offer guidance for gains later this year.
Earlier this week, Intel said it had reduced its stake in Evans & Southerland, a maker of 3D graphics systems, to about 4 per cent with the sale of more than 903,000 shares.
On Monday, it said it had acquired VxTel, a company with data and voice communications technology for $550m in cash.
It also said it had made a further investment of an undisclosed amount in Samsung Electronics, the South Korean chipmaker.
Intel on Wednesday introduced a family of optical communications chips that extend the reach of metropolitan-based and long-haul communications networks without the need for expensive signal repeaters.
The seven chips use a technology known as "forward error correction" to boost the signal of digital traffic on fibre-optic networks.
They support multiple types of communications protocols, eliminating the need for additional components.
"Capital expenditure by the carriers has slowed down, but with our optical components, customers will be able to make use of their existing infrastructure and extend their service area by as much as 400 per cent," said Mike Ricci, vice president of Intel's network communications group.
Intel is trying to diversify from its microprocessor business and boost sales of communications chips. Ron Smith, head of Intel's wireless communications group, said that the company would soon begin reporting revenues from its communications business as a separate item. Currently, since less than 10 per cent of revenues come from this group, it is not required to break out the numbers from its overall revenues.
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