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

To: Amy J who wrote (77784)	4/5/1999 7:00:00 PM
From: VICTORIA GATE, MD	Read Replies (1) \| Respond to of 186894

Amy J re<Where could a person find a list of Intel's current/new investments? > Investing in the Intel Empire March 10, 1999 - 10:45 PM By Nathan Beckord Crafting a winning stock investment strategy isn't easy. But with the vast majority of mutual fund managers lagging the indexes and the rise of cheap and easy discount and online brokerages, a growing number of individual investors are creating their own buy 'em and sock 'em away equity portfolios. There are a variety of schemes that have worked well in the past: buying the "dogs of the Dow" at the beginning of the year, constructing a pool of investments that mimic a specific sector index, or buying the 2nd and 3rd place leaders in several industries. For the technology-focused long-term investor, I propose an alternative strategy: pick the companies that an industry superpower has invested in, and hold on. Let the folks at the heart of the digital revolution be your investing guides. I've picked Intel (INTC) as an appropriate lead horse, as it has proven itself to be adept at recognizing companies that will thrive going forward, and because the semiconductor giant has been seeding industries with a vengeance for several years. Intel invests roughly $300 million a year in new companies, and maintains a portfolio of over 200 equity investment positions. With a billion dollar-plus investment fund, the firm has been taking equity stakes in companies in enterprise software, wireless networks, computer-aided design software, embedded computing devices, e-commerce vendors, and broadband communications. Most notably, Intel has begun to move beyond the PC processor market and into the burgeoning networking component industry. Dominance is certainly not guaranteed, but with the FTC antitrust case (apparently) behind it and with Level One Communications (network chips), Shiva Corporation (remote access technology), Dayna Communications (small business networks), and Case Technology (network packaging) tucked into the fold, the Silicon Valley juggernaut is well on its way towards securing its stronghold in the telecommunications age. So what has Intel invested in? Internet Technologies CMGI: Intel owns 4.9% of CMGI (CMGI), which although wildly volatile, have been one of the Internet's biggest success stories and one of the most exciting firms to watch. Originally a distributor of mailing lists to academic publishers, CEO Dave Wetherell repositioned the company early on as a Net firm with an @Ventures VC arm owning investments that have returned over 5000% thus far. CMGI successes have included a $2 million stake in Lycos (LCOS) that is now worth over $540 million, and a $2 million investment in GeoCities that is worth over $700 (based on the $5 billion that Yahoo! plans to pay for the homesteading site). Other representative holdings among CMGI's 30+ investments include Medical Village (a community-oriented medical site), Virtual Ink (digital networked whiteboard technology), Furniture.com, and of course, Raging Bull. Among the 5 or so portfolio investments slated for a 1999 IPO are Silknet Software and Critical Path (which is currently enjoying a strong pre-offering market buzz). The big caveat: investing in CMGI does not come cheap. The firm touts a market cap of nearly $9 billion, and the stock price has roughly doubled in the past month. Furthermore, when valued on an asset basis (i.e., by estimating the value of the holdings in the public companies, subsidiaries, and venture investments), the stock is wildly overvalued, and even if one assumes that all venture investments will turn into home-run IPOs, the stock could still be considered pricey. This analysis would, however, neglect one of the key features of the company.the ability of CMGI to leverage its investments by having its companies work together to build each other's businesses. By being able to grant memberships to its "VC Keiretsu", CMGI should be able to continue to attract premier venture-stage investments, much the way Goldman attracts premier IPO candidates. Look for the a cool-down in the IPO market as a buying opportunity, and monitor announcements at the annual summit meeting in April for further business clarity. CNet: CNet (CNET) is another Internet darling that has recently caught up to its peers on a valuation basis, and now hovers near the $4 billion mark. The company is an information value-add intermediary, focused on providing original computer, technology, and Internet content. CNet's key advantage is its ability to aggregate computer and technology buyers and link them to sellers through sites such as Shareware.com, Download.com, Gamecenter.com, News.com, Computers.com, Builder.com, Browser.com, and Shopper.com. With over 700,000 registered users, approximately 8.2 million page views per day, and--get ready--profitability, CNet is well positioned to continue its run. An alliance with AOL (AOL), investments in AuctionGate and NetVentures, and a new acquisition-ready war chest of $150 million should further solidify CNet's leader status. Inktomi: Inktomi (INKT), a developer of scalable network applications designed to reduce congestion on the Internet, received a $2 million investment from Intel back in October of 1997. As part of their strategic alliance, Intel and Inktomi are collaborating on the development of Inktomi's Traffic Server network cache product so that it runs on Intel architecture. Traffic Server reduces Internet congestion and bandwidth costs by eliminating redundant traffic and moving data closer to users within a network; i.e., innovative cacheing. Target customers include Internet service providers, telecommunication companies, and backbone carriers. In the deal, Intel received non-exclusive distribution rights to the product. Like CNet and CMGI, Inktomi's share price has had a tremendous run-up, but the firm's Internet-enabling technologies, such as Traffic Server and Shopping Engine, have positioned the company as a vital organ in the global network. Other Intel Internet investments of note include Webcast network Broadcast.com (BCST), Internet services firm USWEB/CKSG (USWB), and "local portal" firm Ticketmaster/City Search (TMCS). Finally, it should be mentioned that Intel has filed with the SEC to lighten its holdings in USWEB/CKSG, INKT, and CNet. Advanced Chips Micron Technologies: Intel has invested $500 million in Micron (MU), which translates into the right to buy common stock amounting to 6 percent of the company's common shares. Micron is a maker of Rambus high-speed memory chips, which will help solve data-to-processor bottlenecks. The technology has been delayed until the third quarter, but once released it is expected to dramatically improve the amount of data per processor clock cycle versus the current standard DRAM, which is constrained by technological limitations. The Micron investment essentially ensures that Rambus' designs will work with Intel's architecture, and adopting Rambus will give Intel a way keep the company's processor speeds ahead of the competition. Micron trades at $55 1/8 (down from a high of $80 reached in January), and sports a market cap of $13.6 billion. Samsung: Intel's commitment to Rambus technology is further exemplified through a $100 million investment in South Korea's Samsung Electronics. Intel is buying $100 million worth of convertible bonds exchangeable into common shares equivalent to about 1 percent of Samsung's common shares. Samsung, the world's largest dynamic random access memory (DRAM) supplier, will spend the money in fabrication, assembly, and test facilities for Rambus DRAM chips. Samsung trades on the Korea Stock Exchange. Bandwidth and High-Speed Networking Intel's recent $2.2 billion acquisition of Level One Communications (LEVL) demonstrates that it is serious about becoming a bandwidth facilitator. Level One will enable Intel to provide the chips that speed data to a PC over a high-speed connection. Furthermore, Intel picked up in the acquisition an array of technologies for digital subscriber lines (DSLs). The acquisition was a bold diversification tactic, as sales of communications chips are expected to rise twice as fast as sales of microprocessors (Intel's bread and butter), and Intel's networking sector products currently contribute less than 10 percent of the company's $26 billion annual revenue. Intel has made a series of other networking- and bandwidth-related investments: Broadcom In February, Intel acquired a 3.9 percent stake in high-speed communications equipment maker Broadcom (BRCM), which follows an agreement made last May between the two firms to collaborate on a cable modem project. Broadcom generates 40 percent of its revenue from the chip business for networking companies and 60 percent from digital set-top boxes and cable modems. The subsequent acquisition of Level One has created some overlapping competition between the two holdings, but the effect has been downplayed. Monitor Intel's SEC filings for any indications of investment direction-- divestment or otherwise. Broadcom trades at $62, down sharply from a high of $95 reached in January. NorthPoint Communications Intel was an early investor in NorthPoint, a company that sells symmetric digital subscriber line services to businesses. Analysts consider NorthPoint to be well-positioned in their market. The company currently offers service in 12 metropolitan areas and plans to offer DSL in 28 cities by the end of the year. NorthPoint has filed to go public, in an offering led by Goldman Sachs (always a good sign). Covad Intel was a VC investor in Covad Communications (COVD), a competitive local exchange carrier. Like Northpoint, Covad is also a wholesaler of digital subscriber lines. Intel's connection to Covad is strong, as the three founders of the firm are all Intel alumni. Covad was one of the first DSL companies to launch an initial public offering, and currently trades at around $50 with a market cap of $2.3 billion. Intel has also invested in privately-held Copper Mountain, which makes products for digital subscriber line technology. Finally, to hedge its bets, Intel has a $24-million stake in AtHome (now part of AT&T/TCI), the much-hyped Internet-over-cable pioneer. Intel's strategy is clear.it doesn't care what form of high-speed Internet access ultimately prevails.just as long as Intel is inside, somewhere. Videoconferencing In January, Intel announced that it is investing $30.5 million in PictureTel (PCTL), a maker of business conferencing systems, as part of an agreement to develop videoconferencing products. Intel plans to develop personal computer-based solutions along with PictureTel to meet companies' communication needs. As part of the distribution and joint product development deal, Intel gives PictureTel distribution rights to sell the Intel ProShare Video System 500, and exclusive worldwide distribution rights to sell and support the Intel TeamStation System. PictureTel will provide support services for both products. PictureTel is one of the less-expensive Intel investments. After a run-up to the $40 range in late 1995 and 1996, the stock has trended down (and largely remained) in the single digits. CAD Software Intel has bought an undisclosed, minority stake in Think3, a privately-held maker of computer aided design software. Intel's investment comes as part of an overall effort to boost the graphics performance of workstations and PCs that depend upon chips based around the Intel architecture. Earlier this year, Intel bought approximately 8 percent of workstation graphics chip maker Evans & Sutherland (ESCC), a $150 million market cap stock trading at $15. In 1998, Intel started to make lower-end graphics chips under its own name and finalized a purchase of notebook graphics specialist Chips & Technologies. Intel has also invested $14.75 million in Avid Technology (AVID), a leading audiovisual editing product company. Avid trades at $31 13/16, with a market cap of $780 million. Several private firms that Intel has invested in are also worth mentioning: Operating Systems Intel recently announced an investment in VA Research, a leading player in the fast-growing Linux operating system market (and the firm who had the successful bid for the coveted Linux.com domain name). VA Research recently offered new Pentium III-based systems, and the two firms are working to port the Linux operating system to Intel's upcoming 64-bit Merced chip. In other Linux-related moves, Intel has teamed with software development tool company Cygnus Solutions, and several months ago Intel announced an investment in Red Hat, a distributor of Linux packaged with other software and technical support. These investments are notable in that it furthers the chipmaker's support of operating systems other than those developed by Microsoft (MSFT). Support for Linux, a fast-growing OS that offers Unix reliability at a lower price point, is part of the company's plan to make its chips the "unifying architecture" that many different companies choose as the hardware beneath their operating systems. Finally, Intel has made a $25-million investment in Be, creator of an operating system targeted toward the visual media industry. Other Intel investments to watch are iPrint.com, DigitalThink, SilverStream, and iVillage. Finally, Intel has formed a veritable slew of alliances and joint agreements over the years. A few have investment opportunity potential: Analog Devices: In February, Intel and Analog Devices (ADI) announced that the two companies are joining together to develop an architecture for a new generation of digital signal processors. DSPs are specialized communications chips used for processing video, image, voice, and data. The firms will establish a joint engineering team in Austin, Texas, for developing a DSP core, which will likely be brought to market next year. The move into DSPs, which have historically had very attractive margins, is another attempt by Intel to mitigate the pricing wars in the PC chip market brought about by fierce competition from AMD and Cyrix. Analog Devices currently trades at $27 1/8, with a market cap of $4.35 billion. S3: In December, Intel and S3 (SIII) announced a long-term alliance, which includes a 10-year cross-license patent agreement for various semiconductor products. Intel also pledged to purchase warrants to buy S3 shares. S3 is a supplier of single-chip 2D, 3D, and video accelerators for the desktop and mobile markets. The company's stock price has been on the rebound since October, when it reached a 52-week low of $1 1/2. S3 currently trades at $8 3/16. Other major alliances include an agreement with Discreet Logic (DSLGF) to develop visual effects products for Intel's Merced chip, and Pandesic, an e-commerce solutions company that is structured as a joint venture between SAP (SAP) and Intel. Sum: Naturally, not all of Intel's investments will enjoy the screaming stock price success demonstrated by CMGI, Inktomi, and CNet. But the companies growing in Intel's private garden constitute a unique set of investments that should stand to benefit from the chipmaker's juggernaut status and ever-increasing clout. Collectively, this is a group of stocks with the decidedly favorable advantage of being "one of the Intel chosen". Small start-ups instantly gain the credibility that comes with Intel backing, and larger firms take advantage of the shared technical know-how, engineering leverage, distribution leverage, early access to product roadmaps, and so forth. To be fair, any sizeable equity investment comes at a price--the loss of a certain amount of operating freedom. But historically, Intel's direct influence has been mild. the company generally doesn't take board seats, for example. and its relationships with its portfolio companies have centered on marketing and technology support. In sum, a portfolio patterned after Intel's investments is an excellent starting strategy for constructing a set of long-term equity holdings. Not only are you investing alongside one of the savviest investment machines in the industry, but also you are placing bets parallel to an entity that has tremendous power to beneficially influence the subject companies' success.