November 1999

The Intel Octopus

Intel is pouring billions into smaller companies to gain access to markets, expertise and hot technologies. Is the computing giant sponsoring innovation or is it growing tentacles that will crush competition?

By G. Pascal Zachary

Remember the octopus? Nearly a century ago, novelist Frank Norris came up with that image to refer to big businesses that, through cross-ownership agreements, gained effective control of whole industries. But the term isn't just a musty reminder of the age of J.P.Morgan. It's highly relevant today, in the highest of high-tech sectors-computing.

Is Intel the "Octopus" of the Information Age? Or has the world's most profitable manufacturer simply found a better way to sponsor innovation?

These are the key questions about Intel's audacious program-of unprecedented scale in the history of American business-to invest hundreds of millions of dollars each year in scores of small companies based on hot new technologies. In the past three years alone, Intel has invested a cool billion in hundreds of projects around the world. Intel rarely plays a direct role in management and usually invests about $3 million per pop.

But Intel isn't playing Good Samaritan. The company says it hopes the investments will give its own researchers a view of the high-tech horizon and a chance to catch the next great waves of innovation. Intel's CEO, Craig Barrett, says its venture-capital investments can bear more fruit than "putting a group of 50 [Intel] researchers into a building in these spots." The company invests in more than semiconductor technology-including research into the Internet, communications, software and video technology.

As with its industry-leading microprocessors, Intel is a pioneer in this approach. The company is essentially extending the make-or-buy decision to research. Its tactic reflects the belief that doing all of your own research has its drawbacks. Besides the cost, there is the risk that in-house teams develop a "not invented here" syndrome.

That won't happen to Intel, says Stephen Nachtsheim, who oversees the company's investment program. Nachtsheim says the company wants a supplement for its own research and development, not a substitute. He lists four priorities for Intel's investments:

Expand existing markets: Intel wants to support companies that come up with new uses for chips.

Gain new "process" expertise: The ability to make chips, which is growing harder as the chips grow smaller, increasingly distinguishes leading chip concerns from the also-rans. "By investing, we can help companies deliver these process technologies to us faster than they might otherwise," Nachtsheim says.