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Intel's spending spree
The chip giant is throwing its money around in order to boost demand for its processor products
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June 22, 1998 - Web posted at 1:00 PM EDT by Andy Santoni |
From...
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(IDG) -- Not satisfied with $100 million in net income every week, Intel is baiting users into continuously upgrading to faster CPUs by investing much of its profits in technologies that chew up processor power and shrink the useful life of even the most powerful PCs.
Intel investsOne way that Intel guides the PC industry is to invest in companies that develop computer enhancements, especially enhancements that demand faster CPUs.
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To that end, Intel is investing hundreds of millions of dollars in hundreds of small companies that offer products or services that enhance the use of PCs -- and demand ever-increasing levels of performance.
To accomplish that goal, Intel must enable new applications that require higher-performance CPU. That fits with Intel's sole objective: sell more processors.
"Intel's aim is to grow the market for microprocessors," said Nathan Brookwood, principal analyst at Dataquest, in San Jose, Calif.
This year, Intel may spend upward of a half billion dollars to back companies that can help it continue its torrid growth. That is substantially more than most venture capitalists invest in one year.
"You will not find a venture fund that has invested at that rate," said Ken Perlman, executive director of equity research at CIBC Oppenheimer, in San Francisco.
Intel does not have all of the capabilities of venture capital firms, which often help with a company's day-to-day operations. As a result, Intel does not take a majority position in the companies it backs.
Still, small companies welcome an investment from Intel because it makes it easier for the company to get other companies or venture capitalists to invest, Perlman noted.
Intel's objectives in these investments are to make a profit and boost processor sales, Craig Barrett, Intel's president and chief executive, said in a recent interview.
"They are straight up and honest [about their investment objective]," Perlman said.
Intel's objective is to "grow the whole PC market," one Intel representative agreed. He noted that the company could grow by increasing its market share or by increasing the market, and chose the latter.
In short, by increasing the market, Intel could decrease its market share but still grow its business because the total pie is larger.
"It all dovetails back to helping us sell more processors," the executive said.
Companies that are working on increasing communications bandwidth or improving graphics are likely candidates for an investment from Intel, the executive noted. By eliminating bottlenecks that restrict a PC's performance, these improvements in PCs encourage users to upgrade to faster processors.
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The executive said Intel in 1997 alone invested about $300 million, and its portfolio is now worth about $750 million. Intel has invested in about 125 companies, he added.
Intel is not just throwing money into the computer market but targeting activities that improve PCs and demanding higher-performance CPUs.
An example of Intel's strategy is the host-based digital video disc (DVD) package that Intel is introducing this week, said Calvin Stith, graphics strategic marketing manager at Intel Reseller Product division.
The package includes an Intel Pentium II motherboard, Intel Express graphics card, and a software DVD controller, optimized for the graphics card, from Zoran.
The software DVD controller replaces hardware that performed the same functions, cutting manufacturing costs and simplifying upgrades. However, a software DVD controller places a greater burden on the CPU, so the slowest recommended CPU is a 300-MHz Pentium II.
Entertainment is not the only area Intel targets. Others include corporate, Internet, speech recognition, and middleware markets.
"Intel has been seeding new markets for years now," said Christine Traut, a strategist at Andersen Worldwide SC, in Chicago.
However, Intel is not always successful in promoting a new technology.
For example, a few years ago Intel tried to ignite a market for desktop videoconferencing, perhaps before end-users were ready.
"It never really happened," Traut said.