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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Jay who wrote (46311)	1/31/1998 3:01:00 AM
From: Barry Grossman	Respond to of 186894

Jay: <<Has it worked always>> I don't know. Perhaps you'd like to check it out. By serendipity, I just found this tonight. It might be interesting to chart the price rise (or fall) of these from the time the information about the Intel ownership became public. fool.yahoo.com Dec 08, 1997 FOOL ON THE HILL An Investment Opinion by Randy Befumo Intel Buys CMG Stake Shares of CMG Information Services (Nasdaq:CMGI - news) leapt $4 5/8 to $28 1/2 today after Intel (Nasdaq:INTC - news) announced that it had purchased 4.9% of the company. The Safeguard Scientifics (Nasdaq:SFE - news) of the online world, over the past two years CMG Information Services has turned itself into the best-known, publicly traded venture capital firm specializing in online properties. From its early success selling its Booklink Technologies browser to America Online (NYSE:AOL - news) in late 1994 to its more recent success with the initial public offering of its Lycos (Nasdaq:LCOS - news) unit last year, the company's shares have been extraordinarily volatile over the past few years -- much like investor sentiment towards the Internet. Although the financial terms of the deal were not disclosed -- most importantly Intel's purchase price -- many took today's investment by Intel as a stamp of approval on CMG and started buying it themselves. The question investors need to ask themselves is whether or not Intel's investment should be taken as some kind of sign that CMG is cheap. Intel's strategic investment thesis does not necessarily have the creation of capital gains as its first priority, which means that investors who follow Intel are not necessarily going to make tons of money. In order to answer this question, we have to first understand what CMG is and then look to see how it fits in the larger portfolio of Intel investments. Three years ago CMG Information was completely focused on opportunities in direct marketing. The company operated a mature list selling business that generated free cash and had a growing product literature fulfillment arm that was providing it with earnings growth. Two incredibly fortunate events allowed CMG Information to create CMG @Ventures, L. P., its venture capital unit dedicated to buying equity stakes in online properties. The first was its sale of Booklink Technologies to America Online in December of 1994 for 4.0 million split-adjusted shares of stock worth approximately $50 million at the time of the transaction. With the proceeds from this transaction, CMG Information began investing in similar properties, one of which was Lycos, the third largest Internet search engine going. This investment has also paid off wonderfully for CMG, as its current 53% stake is worth $245.0 million. Today, CMG Information is composed of a number of businesses of varying sizes: three wholly owned Interent start-ups focused on direct marketing using the Internet; CMG @Ventures, L. P., which takes equity stakes on online properties; SalesLink, which provides product and literature fulfillment services for high-tech, financial, and healthcare companies; CMG Direct, which maintains and sells lists of names to educational and business-to-business publishers; and Engage Technologies, which creates database tools for online direct marketing. @Ventures owns equity stakes in Lycos, Parable, LLC, GeoCities, Ikonic,Reel.com, Silknet Software, KOZ, Sage Enterprises, and Softway Systems. CMG gets about 80% of the capital gains of @Ventures investments with the remainder going to other @Ventures partners. As a company focused on turning the Internet into a viable engine of commerce, CMG Information is similar to other Intel investments like Cybercash (Nasdaq:CYCH - news) and CNET (Nasdaq:CNWK - news) . Part of Intel's general strategy is to invest in companies that will create demand for products and services that require more PC horsepower. However, Intel's investments are not just limited to online content. The company has invested in other semiconductor and component manufacturers like Radisys (Nasdaq:RSYS - news) , Standard Microsystems (Nasdaq:SMSC - news) , and VLSI (Nasdaq:VLSI - news) ; software and equipment developers like VTEL (Nasdaq:VTEL - news) , SystemSoft (Nasdaq:SYSF - news) , Xircom (Nasdaq:XIRC - news) , Wavephore (Nasdaq:WAVO - news) , and Phoenix Technologies (Nasdaq:PTEC - news) ; as well as other assorted companies like ETEC Systems (Nasdaq:ETEC - news) and Avid Technology (Nasdaq:AVID - news). And almost all of these are only the companies where Intel has a 5% or greater stake and has to disclose its ownership. The company has plenty of other investments beyond these that would take months to fully detail. As for the performance of these investments, they have certainly been very divergent. Investing in them based on Intel's position alone who have created about as many capital losses as gains, indicating that Intel's strategic partners are not necessary the companies you should be thoughtlessly slapping into your portfolio. With Intel's 5% or greater positions listed above worth approximately $316 million, you could have just as easily bought dogs like SystemSoft (down 60% over the past 12 months) as a high-flier like Avid Technology (up 130% over the past 12 months). Even worse you have absolutely no guarantee of getting the same price as Intel, as the company often gets a discount when it buys a large position from companies that want Intel as a partner. The individual investor, unfortunately, doesn't get the same deal and can buy in substantially higher than Intel's cost basis. Although seeing a company like Intel take a large position in another company might give you an idea you otherwise would not have had, it certainly does not constitute any kind of indicator that the company is poised to rise propitiously over the next few months. ------------- Barry