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Intel's VC funds build a Wi-Fi world
$150M backs wireless technology
Mark Larson Staff Writer

Sam Arditi sees a lot more wireless technology in our future, as well as phones that act like computers and computers that can act like phones.




As the local front man for Intel Capital, his job is to help direct its two venture funds, worth about $753 million, into companies that do one main thing: build demand for Intel Corp.'s microprocessing chips, particularly in wireless tech.



Intel is directing a big piece of the money into wireless fidelity, or Wi-Fi, a technology that lets laptops hook into the Internet over fast wireless connections in restaurants, airports and anyplace else there's an antenna with an online connection.



"People are demanding to connect anywhere, anytime, on any continent all day long," said Arditi, vice president of Intel's wireless communications and computing group. "For this to happen, you need the architecture to support it."



Intel Capital, one of the few tech capital funds that has maintained its venture investing despite the tech slump, has $125 million to spend on promising wireless tech ventures. Santa Clara-based Intel Corp. is also spending $300 million to market its "Centrino" chip package for Wi-Fi, with the goal of making it as common as "Intel Inside."



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Intel sees Wi-Fi as a big source of future chip business for the company, which rode the tidal wave of microchip demand during the 1990s PC boom.



Intel's other Wi-Fi moves include:



Its Cometa Networks venture with International Business Machines Corp. of Armonk, N.Y., and AT&T Corp. of New York City. The project seeks to build a national network of "hot spots" where people with Wi-Fi-enabled laptops can go online. Observers expect the network to be working within three years, with Intel's Wi-Fi chips eventually becoming a laptop standard.
Last autumn, Intel Capital announced plans to invest another $150 million in Wi-Fi. Since October, Intel has invested $25 million in 15 Wi-Fi investments, Arditi said. Their targets are startups and public companies promoting the use of Intel chips.
Intel Capital invested more than $200 million in more than 100 deals worldwide last year, reports VentureWire, making it the most active venture-capital investor in the world. The pace should continue under the unit's new president, John Miner.



For startups in the hot categories, the Intel money "creates great opportunity," said Harry Laswell, a former local Intel Capital exec who now invests in startups at Roseville-based American River Ventures. "The hard question is, which ones are going to be successful?"



Intel Capital typically buys minority stakes of less than $10 million.



The company doesn't disclose financial results from its investments, saying only that "the program has contributed billions in cash to Intel" since it began making the investments 10 years ago.



But it's looking outside the United States more than it used to. Three years ago, 15 percent of Intel Capital's investments were overseas. Now 40 percent are.



Buying a lot of jazz: At Intel's Folsom campus, Arditi spends most of his time developing markets for Intel platforms for personal digital assistants (PDAs) and cell phones. He's trying to grab a share of the camera-equipped PDA and phone market for Intel.



"Thirty to 40 percent of the cell phones sold in Japan have cameras," he said. "Two years ago it was 1 to 2 percent.



"We believe phones will browse the Internet and PDAs will have voice in them," Arditi said. "We believe if we enable new functionality (with higher-octane chips), the killer app will show itself." Mix in wireless connectivity, he added, "and that buys a lot of jazz."



Another service he sees coming: CD-quality movie soundtrack melodies, played on cell phones to identify different callers. "That's predicted to be a $1 billion business in three years," he said.



Arditi said Intel has no worries about personal computers and cell phones competing for data and voice uses.



Not so fast: Most analysts believe all this high-tech mixing of computing and communications won't happen overnight. Laswell of American River Ventures figures it is 20 years off.



And he's not convinced Intel's "hot spot" development strategy will cover the country. The 100-foot reach of hot-spot antennas might combine to cover hundreds of square miles at best, he said. "I don't follow their math, personally."



But Arditi's forecast of devices that can handle both phone and computer chores, Laswell said, is "absolutely a viable idea."



Laswell's group sees wireless as one of five or 10 new technologies with the most potential for startups. Others include information security, network systems, data storage and fast communications devices.



His group is looking at deals in Sacramento, Portland, Ore., Salt Lake City and Denver, but he's not ready to predict an uptick in tech venture funding, which has generally moved at glacial speed.



"It's hard to tell," Laswell said. "It will be slower than anybody thinks."



Others weigh in: Keith Waryas, wireless technology market researcher for International Data Corp. in Massachusetts, said Intel Capital's investment tack is different from the norm. Instead of providing seed funding, it invests with one goal: more sales for its chips.



It's worked so far, he said.



But Waryas isn't convinced that most phones and computers will add each other's functions. Most customers will want the devices to be separate, he said.



As for Wi-Fi hot spots, Waryas expects the most use from businesspeople in hotels and airports, not from the mass market. Even so, McDonald's Corp., Borders Group Inc. and others plan to roll out hot spots for their customers.



Because of its potential for business, wireless networks promise to be a rich, long-term market, he said. Building them costs less than installing cables. Small businesses can benefit from wireless networking's lower cost, he added, and the home market isn't far behind.



Like Laswell, however, Waryas sees all this happening incrementally.



"If we look at this stuff in the next two years, we won't wonder, 'How did I ever live without this?' " he said. "But in 10 to 15 years we probably will."



Security issues have to be ironed out of the technology, he added.



Meanwhile, Waryas thinks wireless tech will do less for Intel chip sales than the personal computer did.



"With the PC, Intel went from zero to 60," he said. "With wireless networks, it will go from 60 to 80."



Scott Lenet is a Sacramento-based venture-capital manager for DFJ Frontier, a startup funding unit of Silicon Valley-based Draper Fisher Jurvetson.



Intel's investment in developing hot spots to promote Wi-Fi use, he said, is typical of the strategy the company uses to build a market for its chips.



"That's what Intel has always done," he said.



Lenet also disagreed with Arditi's vision of a future where most gizmos can compute and place calls. He said they might be the exception.



"I see the trend of devices getting more differentiated over time," he said. "The different needs of consumers and business will pull different products to market."



Lenet said big companies can err in their marketing predictions, pointing to the New Coke flop in the mid-1980s.



"It's a tough market out there," ceded Arditi. But his job is to catch the next wave of mass-market technology.



"We believe in the next wave," he said.

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© 2003 American City Business Journals