1. finance
2. investing
3. venture capital

Telesoft Annual Meeting
Keith Larson
Director, Strategic Investments
Intel Capital
October 25, 2002
Intel Capital
Agenda
• Intel Capital Overview
• Communications Investing
• Investment Themes
• Summary and Q&A
Intel Capital
Intel Confidential
2
Intel Capital’s Mission
• Make and manage financially attractive
investments in support of Intel's strategic
interests
• Execute Intel's strategic acquisitions
• Be the eyes and ears of Intel on technology
and business trends
Strategic
Intent
Financial
Viability
Intel Capital
Intel Confidential
3
Experienced Investors
Summary
• Invested over $350 Million in 175
deals in 2001
• Invested over $1 Billion in both
1999 and 2000
# Transactions
At end of December 2001
1994 1995 1996 1997 1998 1999 2000
• Over 500 companies
• About $1.7 billion value
Intel Capital
Intel Confidential
4
Worldwide Investment
$ Invested by Region
6%
2% 2%
15%
96%
1998
North America
Asia Pacific
Europe & Israel
Rest of World
55%
24%
2001
Investments outside of USA
•
•
•
Over $1 billion
Over 175 companies
In over 25 countries on 5 continents
Intel Capital
Intel Confidential
5
Intel Capital Geographic Overview
Sweden (1)
Germany (9)
Seattle (1)
Mass (7)
Oregon (52)
Utah (2)
New Jersey (2)
Virginia (1)
Ireland (1)
England (18)
Poland (1)
France (2)
China (4)
Korea (3)
Japan (8)
Arizona (4)
Israel (14)
California
Mexico (1)
•Folsom (15)
•Santa Clara (105)
Hong Kong (15)
India (7)
Brazil (7)
Taiwan (5)
Singapore (1)
Argentina (4)
Australia (2)
Intel Capital
Intel Confidential
6
As of 4/24/2002
Complementary Efforts
The Company
Intel Capital
Venture Capital Firms
•
•
•
•
•
•
•
•
•
•
•
•
•
Technology due diligence
Technology collaboration
Drive standards
Promote within Intel
Marketing cooperation
Board Observer position
Portfolio relationship building
Lead round
Recruiting
Board Seat
Support of exit strategy
Management support
Portfolio relationship building
Intel Capital
Intel Confidential
7
Intel Capital’s Decision Making
Les Vadasz
John Miner
Computing
Communications
Geographies
Investment Sectors
Legal
Treasury
Intel Capital
Intel Confidential
8
Milestones
Intel Capital Process
Gap Analysis
Business Plan
Or Proposal
Received
Deal Concept
Approval Meeting
(DCM)
Investment Project
Authorization Meeting
(IPA)
Disposition
Close
Investigation
2 weeks to
2 months
Due Diligence
2 weeks to 3+ months
Delivering Value
6 months to 3+ years
Intel Capital
Treasury
Legal
Business Unit
Intel Capital
Intel Confidential
9
Intel Capital’s Sources of Deals
• Referred by valued source
– Senior management
– Past deal successes
– VC’s
– Lawyers, bankers, accountants, i-bankers…
• Business Unit or Labs
• Industry association or trade show
• Website or cold call
Intel Capital 10
Intel Confidential
Assembling an Investment Strategy
Tools that Intel Capital uses:
• Equity
• Licensing
• Alliances
• M&A
Types of Equity Investing Strategies
• Eyes and Ears
• Ecosystem
• Market Development
• Gap Filling
Intel Capital 11
Intel Confidential
Deal Mix Changes with BU Goal
% of Deals
Example: Network Processing
60%
• Goal: build larger # of allies for initiative
• Typical profile for ecosystem development
• Often characteristic of a newer business, but
one that is closer to Intel’s core competencies
20%
Gap Fill
Ecosystem
Eyes & Ears
% of Deals
Example: Ethernet Solutions
• Goal: fill gaps, enable adoption, drive mkt dev
• Typical profile for accelerating deployment (of
BB for example)
• Sometimes this profile is characteristic of
more mature businesses
60%
20%
Gap Fill
Ecosystem
Eyes & Ears
Intel Capital 12
Intel Confidential
Agenda
• Intel Capital Overview
• Communications Investing
• Investment Themes
• Summary and Q&A
Intel Capital 13
Intel Confidential
Investing Environment
US$B
Total US VC $$$ Invested
140
120
100
80
60
40
What was once hard times
20
0
1970
What to
Expect ??
1975 1980 1985 1990 1995 2000
Source: VentureOne
Intel Confidential
1H’02
Intel Capital 14
Big Part Of Drop Off Is In Comm Investment
Equity into Venture-Backed Communications Companies
$10
211 202
190
$8
168
$6
$4
$2
115 122
250
226
200
$6.4
150
133
$5.5
$5.3 $5.4 $5.4
102
99
$3.1
$2.3 $2.1
$1.1
$2.3
92
92
95
100
$1.8 $1.6 $1.7
64
$0.9
$0
50
0
1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02
Amount Raised ($B)
Number of Deals
Source: VentureOne
Intel Capital 15
Intel Confidential
Early-Stage Comm Deals Losing Ground
Communication Deals by Round Class
829
Later
Stage
504
Second
Round
419
357
271
First
Round
58%
286
159
159
Seed
Round
51%
23%
1995
1996
1997
1998
1999
2000
2001
1H02
Source: VentureOne
Intel Capital 16
Intel Confidential
Connectivity & Fiberoptics Continue to
Dominate Comm Deal Flow
Communications Deals by Sector
271
286
357
504
829
419
159
100%
Connectivity Products
80%
94
102
133
176
216
115
50
Fiberoptic Equipment
Wireless Equipment
60%
15
40
40%
30
20
60
104
44
56
283
45
39
165
55
97
41
76
20%
97
61
20
33
20
2001
1H02
0%
1996
1997
1998
1999
2000
Telecom Providers
Internet Service
Providers
Wireless Service
Providers
Other
Source: VentureOne
Intel Capital 17
Intel Confidential
Companies Selling at a Discount
Deals and Amount Raised Through Communications Companies’ M&As
22
19
$25
$20
16
15
14
$18.2
12
$15
9
$10
$5
20
$10.9
$7.9
$3.3 $3.8 $4.4
$0
13
8
$8.3
9
8
7
15
10
7
5
5
$1.3 $2.0 $0.6 $1.1 $0.8 $0.5 $0.6
0
1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02
Amount Raised ($B)
Venture-Backed M&As
Source: VentureOne
Intel Capital 18
Intel Confidential
Early 2002 IPOs Look Like 2001
Deals and Amount Raised Through IPOs
248
216
$25
$20
168
200
154
$19.4 $18.8
143
$5.3
$2.7
$4.9
100
68
$8.7
$10
$5.2
150
121
114
$15
$5
200
$4.6
$3.7
$1.7
21 $1.0
11
$0
1992 1993
1994 1995 1996
1997 1998 1999 2000
Amount Raised ($B)
50
0
2001 1H02
Venture-Backed IPOs
Source: VentureOne
Intel Capital 19
Intel Confidential
Communications Liquidity
IPOs and M&As Completed by Venture-Backed Communications Companies
59
60
56
50
50
40
40
34
30
20
15
31
18
15
10
2
0
1995
1996
1997
1998
1999
2000
2001
0
M&As
IPOs
1H02
Source: VentureOne
Intel Capital 20
Intel Confidential
Looked At Another Way
Ownership Status by Year Founded
153
151
212
306
452
488
564
948
1842
Total Pool
608
195
1600
In the BEST years approximately 500
1400 companies found liquidity through an M&A
transaction or IPO
1200
1000
5+ years of inventory or ??
800
1154
600
573
400
200
22
26
46
1992
1993
1994
0
Public
71
120
182
274
576
193
1995
1996
1997
Acquired/Merged
1998
Private
1999
2000
2001
YTD
Out of Business '02
Source: VentureOne
Intel Capital 21
Intel Confidential
Time To IPO
Next-Gen, Old-Fashioned Venture
10
9
8
Median Age
7
At IPO
(Years)
6
5
4
3
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Source: NVCA
Intel Confidential
Intel Capital 22
Communication Valuations Worse
Median Pre-Money IT Valuation by Round Class ($M)
$233.00
$225
$200
$175
Later
Round
$150
Second
Round
$125
$100.00
$100
$75
$64.00
$52.50
$51.00
$50
$25
$0
$32.00
$28.00
$22.20
$1.22 $6.95
1996
First
Round
1997
1998
1999
Seed
Round
$17.00
$24.20
$8.00
$11.78
$10.00
2000
$5.33
2001
1H02
Source: VentureOne
Intel Capital 23
Intel Confidential
Back to Basics
• Business Plans
• Technology With Value
• Business Models That Work
• Total Capital Required
• Experienced Management Teams
• Valuation Sanity
• Deep Pockets and Long Arms
• Real Exit Strategies For Investors
Intel Capital 24
Intel Confidential
Technology
• Evolution vs. Revolution
• Technology treadmill is not in recession
• Returns go to the “never good enough”
technology suppliers
• Areas of continued interest
Intel Capital 25
Intel Confidential
Agenda
• Intel Capital Overview
• Communications Investing
• Investment Themes
• Summary and Q&A
Intel Capital 26
Intel Confidential
Communications Sector Focus Areas
Optical
•
•
•
•
•
•
•
Transponders/transceivers
Optical Integrated Circuits
III-V Capabilities
Planar Integration
Free Space Optics
Optical Systems
Disruptive optical devices
Broadband
& Wireless
Networks
• 802.11x (Si, SW, Services for
Enterprise, Home & Hot
Spots)
• BB CPE Components (Si, SW)
• BB CPE Gateways (Si, SW)
• BB Wireless Access
• IP Services (Apps, SPs)
• EFM
• Home Networking
Networking
& Storage
• Network Processing
• Voice Processing
• Switching
• Telecom SHV Servers
• Wired Ethernet
• Storage
• Comm Fund Mgmt
Cellular and
Handheld
•
•
•
•
•
•
Memory SW & Tech
OS, Middleware, Java
PCA Applications
PCA Carrier Support
RF/PA Core silicon
XScaleTM Tools and
Capabilities
Intel Capital 27
Intel Confidential
How We Work Internally
Increasing Control
Equity
Alliance
Contract
• License
• OEM
• Minority Equity
M&A
• Contract
• Joint Venture
• Minority Equity
Intel Capital
Intel Capital
Business Development
Intel Capital 28
Intel Confidential
Some Example Investment Themes
• Cellular handset & PDA architecture
• Storage networking
• Wireless LANs
Intel Capital 29
Intel Confidential
New Business Models
100%
PC Industry *
Outsourced
In-House
Over time:
1980s
1990s
100%
2000s
Cellular Industry*
– Brands remain important
– ODMs are increasingly significant
– Standard Platforms become critical
Outsourced
In-House
1990s
2000s
*data
is conceptual
Intel
Capital
30
2010s
Intel Confidential
New Handheld Applications
Localized / Cultural
Richer content
New Usage Models
Intel Capital 31
Intel Confidential
10
Intel® Personal Internet Client Architecture
(PCA)
Compute
XScale™
Microarchitecture
Intel®
Memory
Intel® Flash
Memory
Standard Interface
Communication
s
Intel® Flash
Software
Intel Base band chipsets
With
Micro Signal Architecture
Standard Building Blocks
for Standards-based Devices
Intel Confidential
Intel Capital 32
Cellular and Handheld Investment Areas
• Hardware (Core)
– DSP, Tools, IP, Intel® XScale™, Flash / SRAM
– RF / PA, Baseband / Dual Mode, Mixed Signal, Soft Radio
– LP Peripherals/Bluetooth, Power Management
• Software
– Platforms, OS, drivers, IPP, compilers
– Java, WAP, MMS
• Ecosystem (Differentiators)
–
–
–
–
–
Position Location, synchronization, voice recognition
Entertainment, video, multimedia, music, eMail
802.11/WAN
Antenna, mobile battery, peripheral appliances
Billing, roaming, security
Intel Capital 33
Intel Confidential
Some Example Investment Themes
• Cellular handset & PDA architecture
• Storage networking
• Wireless LANs
Intel Capital 34
Intel Confidential
Importance Of Storage To Intel
• Data growth unabated, despite economic slowdown
•Storage IS A Key Element Of Any Enterprise Network
•Storage Is A Key Driver For Future Growth
•Use of Ethernet as backbone for networked storage will increase
•SAN (storage over Ethernet) growth in >2000 similar to LAN in ’90s, 47% CAGR in 06
•Direct Attached and Network Attached CAGRs 12% & 26% in ’06
• Several
key technology transitions within 3yrs – Play to Intel Strength
•Serial-ATA, Serial Attached SCSI, PCI Express, iSCSI, Infiniband, 10G
•Fiber Channel, SCSI and ATA are key elements of today’s environment
•iSCSI, Fiber Channel, Serial-ATA will drive tomorrow’s networked storage
• Increasing
integration to deliver value on platform & silicon
•>80% RAID on Motherboard or RAID On Chip by ’05
Intel’s strength today is in I/O processor silicon (high margin Si)
Intel Capital 35
Intel Confidential
Storage Market Segment Summary
Today…
Three Storage Platforms
Workstation /
Performance DT
•
•
•
Direct Attached
Storage (DAS)
Servers
•
LAN
Servers
Network Attach
Storage (NAS)
SAN Switches
External RAID
Arrays
Tomorrow…
•
•
Storage Area Network
(SAN)
Storage
Arrays
• Estimate of all system level opportunities at ~$60B TAM
• Intel specific BB opportunity SAM at ~$8B
DAS accessible only via servers
SAN fabrics are FC today
Fiber Channel (FC) used as the SAN
network connection and disk
interconnect
NAS attaches directly to Ethernet
LAN
•
DAS is trending toward modular,
blade & brick architectures
– Total 2005 SAM ~ $3B*
NAS/SAN converging to “Fabric
Attached Storage” (FAS)
– FC still growing; iSCSI gaining
traction
– Total 2005 SAM ~ $4B*
Disk interconnects rapidly moving to
serial: SATA & SAS
Intel Capital 36
Intel Confidential
Investment Objectives
• Enhance Intel Silicon platforms for Storage (Ecosystem)
– Development tools, middleware, RTOS , Pre-validated IP & s/w stacks, coprocessors
• Accelerate Ethernet storage adoption by Workgroup/Enterprise
(Ecosystem)
– Security, iSCSI targets, iSCSI management
• Create/Enable tech. critical for maintaining Intel leadership (GAP)
– Examples: S-ATA PHY, 10G Copper, iSCSI offload, NAS SW, PCI Ex
• Displace PPC in Storage systems with Intel BBs (GAP)
– System-on-chip technology for IA, IPF, Xscale, IOP, IXP
• Enable innovators who disrupt incumbents w/ Intel’s storage BBs
(Ecosystem / Eyes & Ears)
– SAN appliance, Storage virtualization, Dist. Mgmt., SAN/NAS
convergence
• Promote Standards-based Intra-system Networking (Ecosystem)
– Promote transition from proprietary arch to Advanced TCA (PICMG 3)
arch
Intel Capital 37
Intel Confidential
Some Example Investment Themes
• Cellular handset & PDA architecture
• Storage networking
• Wireless LANs
Intel Capital 38
Intel Confidential
802.11 Explosive Growth
60,000
802.11 Chipset Sales
('000 Units)
50,000
40,000
30,000
20,000
10,000
0
2002
2003
2.4GHz
2004
5.2GHz
2005
2006
Dual-band
Intel Capital 39
Source: ICG Market Model
Intel Confidential
Achieving Our Vision:
Optimizing the Platform
Today’s
Platforms
• Wi-PC
CPU
2002+
Platforms
CPU
Memory I/O
Memory I/O
Graphics
Graphics
Wired LAN
Wired LAN
Wireless
LAN, WAN, PAN
Wireless
LAN, WAN,
PAN
– Goal: >50% wireless embedded NIC in ’03
– Aggressive joint marketing, 3rd party alliances and MDF $
• Platform integration
– Validated, stable system w/the heavy qual. & test lifting done by Intel
– Unique features & performance (e.g., lowest latency QoS)
– Lower cost
Working to define the next gen Wi-PC spec
Intel Confidential
Intel Capital 40
Banias – A New Wireless Era
• Biggest product launch in Intel’s history
• First product designed from the ground up
for mobile computers
• Integrated platform designs with wireless
(“born wireless”)
• Massive marketing campaign to build the
brand and create wireless association
• Key programs in the Mobile Platforms Group
– Mobility Enabling Program
– Infrastructure Enabling Program
• Driving the ecosystem for success
Intel Capital 41
Intel Confidential
Mobility Enabling Program Elements
Platform Guidelines
BKMs to
Deliver Mobility
Suggested Ways to
Deliver on the 4 Vectors
2003 Target
Optimize
The Platform
To Deliver
Best Mobility
Wireless Stacks
Just Work
Wireless Stacks
Deliver Seamless Secure
Connectivity Experience
Platform Enabling
Extend Intel’s Validation
Efforts to Include
Battery Life and Wireless
Platform is Validated
For Mobility
An example:
Banias Processor
Windows XP
802.11 Dual Band
Bluetooth* Wireless Tech
Quick Connectivity
CAPI Based Security
 1.2” (2 spindles)
 4.5 lbs (2 spindles)
4.5 – 6.0 hrs battery
Multi-Year Program to Accelerate Transition to Mobility
Intel Capital 42
* Other names and brands
may be claimed as property of others
Intel Confidential
Infrastructure Enabling Program
Hotspots
Select hotels, airports,
etc.
Promote with network operators,
WISPs through marketing
and technical enabling
Corporate WLAN
deployment pilots
Enterprise
Blueprint programs
with system integrators,
OEMs, including security.
Home
Promote with operators,
BB service providers
& OEMs for residential use.
2003 Target
Multiple Venues
for
Connecting
Banias
platforms
wirelessly
Broadband + WLAN
promotions
Multi-Year Program to Accelerate Transition to Mobility
Intel Capital 43
* Other names and brands
may be claimed as property of others
Intel Confidential
802.11 Hotspot Growth
160000
144K
Asia
Europe
US
140000
120000
98K
100000
80000
65K
60000
37K
40000
7K
20000
17K
0
2000
2001
2002
2003
2004
2005
2006
Source: BWCS Ltd. 2002
Intel Capital 44
Intel Confidential
Agenda
• Intel Capital Overview
• Communications Investing
• Investment Themes
• Summary and Q&A
Intel Capital 45
Intel Confidential
Intel Capital Summary
• Focus on Financial & Strategic success
• One of a few credible corporate investors
• Very experienced, value add complement VC’s
• Investment strategies complement successful teams
Continue to work with Telesoft
Bring us your ideas and inspirations!
Intel Capital 46
Intel Confidential
Backup
Intel Capital
Investment Press
“Intel companies don't just get the money, they get
access to its engineers and the testing equipment in
Intel labs. The Intel stamp of approval can also help
on Wall Street during the IPO process.”
Brad Stone, Newsweek, April 17, 2000
“Intel is the corporate investor everyone watches.
Intel Capital has grown beyond using investments to
fill gaps in Intel's PC chip product line to fueling its
vision of how the industry can open up new ways to
use the Internet.”
David Barry, Senior Editor
The Corporate Venturing Report
March 2001
Intel Confidential
Intel Capital 48