Strategic Thinking: Creating an Investment Strategy

Intel Intel CCapitalapital

Telesoft Annual MeetingTelesoft Annual Meeting

Keith LarsonKeith LarsonDirector, Strategic InvestmentsDirector, Strategic InvestmentsIntel CapitalIntel Capital

October 25, 2002October 25, 2002

Intel Intel CCapitalapital 2Intel Confidential

AgendaAgenda

• Intel Capital Overview Intel Capital Overview

• Communications InvestingCommunications Investing

• Investment ThemesInvestment Themes

• Summary and Q&ASummary and Q&A


Intel Capital’s MissionIntel Capital’s Mission• Make and manage financially attractive Make and manage financially attractive

investments in support of Intel's strategic investments in support of Intel's strategic interestsinterests

• Execute Intel's strategic acquisitionsExecute Intel's strategic acquisitions• Be the eyes and ears of Intel on technology Be the eyes and ears of Intel on technology

and business trendsand business trends

StrategicIntent

FinancialViabilityIdeal


Experienced Investors Experienced Investors

SummarySummary• Invested over $350 Million in 175 deals in 2001Invested over $350 Million in 175 deals in 2001

• Invested over $1 Billion in both 1999 and 2000Invested over $1 Billion in both 1999 and 2000

At end of December 2001At end of December 2001• Over 500 companiesOver 500 companies

• About $1.7 billion valueAbout $1.7 billion value

199419951996199719981999

# Transactions

2000


6%

24%

15%

55%96%

2% 2%

19981998 20012001

$ Invested by Region

North America

Asia Pacific

Europe & Israel

Rest of World

Worldwide InvestmentWorldwide Investment

Investments outside of USAInvestments outside of USA• Over $1 billionOver $1 billion• Over 175 companies Over 175 companies • In over 25 countries on 5 continentsIn over 25 countries on 5 continents


Oregon (52)Oregon (52)

Hong Kong (15)Hong Kong (15)

New Jersey (2)New Jersey (2)

India (7)India (7)

Japan (8)Japan (8)

Virginia (1)Virginia (1) Korea (3)Korea (3)

Ireland (1)Ireland (1)

Israel (14)Israel (14)

England (18)England (18)

China (4)China (4)

Brazil (7)Brazil (7)

France (2)France (2)

Australia (2)Australia (2)

Singapore (1)Singapore (1)

Taiwan (5)Taiwan (5)

Seattle (1)Seattle (1)

Argentina (4)Argentina (4)

Germany (9)Germany (9)

Utah (2)Utah (2)Poland (1)Poland (1)

Sweden (1)Sweden (1)

California•Folsom (15)•Santa Clara (105)

California•Folsom (15)•Santa Clara (105)

Arizona (4)Arizona (4)

As of 4/24/2002

Mass (7)Mass (7)

Mexico (1)Mexico (1)

Intel Capital Geographic OverviewIntel Capital Geographic Overview


Venture Capital FirmsVenture Capital Firms• Lead roundLead round• RecruitingRecruiting• Board SeatBoard Seat• Support of exit strategySupport of exit strategy• Management supportManagement support• Portfolio relationship buildingPortfolio relationship building

Complementary EffortsComplementary Efforts

Intel CapitalIntel Capital• Technology due diligenceTechnology due diligence• Technology collaborationTechnology collaboration• Drive standardsDrive standards• Promote within IntelPromote within Intel• Marketing cooperationMarketing cooperation• Board Observer positionBoard Observer position• Portfolio relationship buildingPortfolio relationship building

The Company


Intel Capital’s Decision MakingIntel Capital’s Decision Making

Les VadaszLes Vadasz

John MinerJohn Miner

Les VadaszLes Vadasz

John MinerJohn Miner

ComputingComputing CommunicationsCommunications LegalLegal TreasuryTreasuryGeographiesGeographies

Investment Sectors


Intel Capital ProcessIntel Capital Process

Investigation Due Diligence Delivering Value

Disposition

6 months to 3+ years2 weeks to2 months

2 weeks to 3+ months

Business UnitBusiness Unit

LegalLegal

TreasuryTreasury

Intel CapitalIntel Capital

Mile

ston

es

Business PlanOr Proposal

Received

Deal Concept Approval Meeting

(DCM)

Gap Analysis

Investment Project Authorization Meeting

(IPA)Close

Intel Intel CCapitalapital10Intel Confidential

Intel Capital’s Sources of DealsIntel Capital’s Sources of Deals

• Referred by valued sourceReferred by valued source– Senior managementSenior management– Past deal successesPast deal successes– VC’sVC’s– Lawyers, bankers, accountants, i-bankers…Lawyers, bankers, accountants, i-bankers…

• Business Unit or LabsBusiness Unit or Labs

• Industry association or trade showIndustry association or trade show

• Website or cold callWebsite or cold call


Assembling an Investment Strategy Assembling an Investment Strategy

Tools that Intel Capital uses: Tools that Intel Capital uses: • Equity Equity • LicensingLicensing• AlliancesAlliances• M&AM&A

Types of Equity Investing StrategiesTypes of Equity Investing Strategies• Eyes and EarsEyes and Ears• EcosystemEcosystem• Market DevelopmentMarket Development• Gap FillingGap Filling


Deal Mix Changes with BU GoalDeal Mix Changes with BU Goal

Gap Fill Ecosystem Eyes & Ears

% of Deals

20%

60%

% of Deals

20%

60%

Example: Network Processing• 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

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 businessesGap Fill Ecosystem Eyes & Ears


AgendaAgenda

• Intel Capital OverviewIntel Capital Overview





Investing EnvironmentInvesting Environment

0

20

40

60

80

100

120

140

1970 1975 1980 1985 1990 1995 2000

US$B Total US VC $$$ Invested

What was once hard timesWhat to

Expect ??

1H’02

Source: VentureOne


Big Part Of Drop Off Is In Comm InvestmentBig Part Of Drop Off Is In Comm Investment Equity into Venture-Backed Communications CompaniesEquity into Venture-Backed Communications Companies

$0.9$1.1

$2.3 $2.1

$5.3 $5.4 $5.4

$6.4

$5.5

$3.1$2.3

$1.8 $1.6 $1.764

959292

102

133

190

226

202211

168

12211599

$0

$2

$4

$6

$8

$10

1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02

0

50

100

150

200

250

Amount Raised ($B) Number of Deals

Am

ou

nt

Rais

ed

($

B)

Source: VentureOne

Nu

mb

er o

f Deals


Early-Stage Comm Deals Losing GroundEarly-Stage Comm Deals Losing GroundCommunication Deals by Round ClassCommunication Deals by Round Class

159

271 286

357

504

829

419

15951%

23%

58%

Source: VentureOne


Connectivity & Fiberoptics Continue to Connectivity & Fiberoptics Continue to Dominate Comm Deal FlowDominate Comm Deal Flow

Communications Deals by SectorCommunications Deals by Sector

3039

41 76

33

4045

44

61 20

15

60 283165 55

94 176216 115 50

97

20

9756

20

104

102 133

0%

20%

40%

60%

80%

100%

1996 1997 1998 1999 2000 2001 1H02

Connectivity Products

Fiberoptic Equipment

Wireless Equipment

Telecom Providers

Internet ServiceProviders

Wireless ServiceProvidersOther

% o

f In

vestm

en

t

Source: VentureOne

159829271 286 357 419504


Companies Selling at a DiscountCompanies Selling at a DiscountDeals and Amount Raised Through Communications Deals and Amount Raised Through Communications

Companies’ M&AsCompanies’ M&As

Am

ou

nt

Paid

($

B)

Nu

mb

er o

f Tra

nsactio

ns

Source: VentureOne


Early 2002 IPOs Look Like 2001Early 2002 IPOs Look Like 2001Deals and Amount Raised Through IPOsDeals and Amount Raised Through IPOs

Am

ou

nt

Rais

ed

($

B)

Ven

ture

-Backed

IP

Os

Source: VentureOne


Communications LiquidityCommunications LiquidityIPOs and M&As Completed by Venture-Backed IPOs and M&As Completed by Venture-Backed

Communications CompaniesCommunications Companies

40

15

34

59

56

31

18

2

15

0

50

0

10

20

30

40

50

60

1995 1996 1997 1998 1999 2000 2001 1H02

M&As

IPOs

Source: VentureOne

Nu

mb

er

of

Liq

uid

ity

Even

ts


Looked At Another WayLooked At Another WayOwnership Status by Year FoundedOwnership Status by Year Founded

153 151 212 306

452 488 564

948 1842

608Total Pool

195

Source: VentureOne

In the BEST years approximately 500 companies found liquidity through an M&A transaction or IPO

5+ years of inventory or ??


Time To IPOTime To IPONext-Gen, Old-Fashioned VentureNext-Gen, Old-Fashioned Venture

3

4

5

6

7

8

9

10

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Median Age At IPO (Years)

Source: NVCA


Communication Valuations WorseCommunication Valuations Worse Median Pre-Money IT Valuation by Round Class ($M) Median Pre-Money IT Valuation by Round Class ($M)

Source: VentureOne


Back to BasicsBack to Basics

• Business PlansBusiness Plans

• Technology With ValueTechnology With Value

• Business Models That WorkBusiness Models That Work

• Total Capital RequiredTotal Capital Required

• Experienced Management TeamsExperienced Management Teams

• Valuation SanityValuation Sanity

• Deep Pockets and Long ArmsDeep Pockets and Long Arms

• Real Exit Strategies For InvestorsReal Exit Strategies For Investors


TechnologyTechnology

• Evolution vs. RevolutionEvolution vs. Revolution• Technology treadmill is not in recessionTechnology treadmill is not in recession• Returns go to the “never good enough” technology Returns go to the “never good enough” technology

supplierssuppliers• Areas of continued interestAreas of continued interest


AgendaAgenda






Communications Sector Focus AreasCommunications Sector Focus Areas

OpticalOpticalBroadband Broadband & Wireless& Wireless NetworksNetworks

NetworkingNetworking& Storage& Storage

Cellular andCellular andHandheldHandheld

• Network Processing• Voice Processing• Switching• Telecom SHV Servers• Wired Ethernet• Storage• Comm Fund Mgmt

• 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

• Transponders/transceivers• Optical Integrated Circuits• III-V Capabilities• Planar Integration• Free Space Optics• Optical Systems• Disruptive optical devices

• Memory SW & Tech• OS, Middleware, Java• PCA Applications• PCA Carrier Support• RF/PA Core silicon• XScaleTM Tools and

Capabilities


How We Work InternallyHow We Work InternallyIncreasing Control

M&AContract Alliance

• Contract• Joint Venture• Minority Equity

• License• OEM• Minority Equity

Equity

Business Development

Intel Capital Intel Capital


Some Example Investment ThemesSome Example Investment Themes

• Cellular handset & PDA architectureCellular handset & PDA architecture

• Storage networkingStorage networking

• Wireless LANsWireless LANs


New Business ModelsNew Business Models

Over time:Over time:– Brands remain importantBrands remain important– ODMs are increasingly significantODMs are increasingly significant– Standard Platforms become criticalStandard Platforms become critical

*data is conceptual*data is conceptual1990s 2000s 2010s

Outsourced

In-House

Cellular Industry*Cellular Industry*Cellular Industry*Cellular Industry*100%100%

1980s 1990s 2000s

Outsourced

In-House

PC Industry *PC Industry *PC Industry *PC Industry *100%100%


New Handheld ApplicationsNew Handheld Applications

10

Localized / CulturalLocalized / CulturalRicher contentRicher contentNew Usage ModelsNew Usage Models

Localized / CulturalLocalized / CulturalRicher contentRicher contentNew Usage ModelsNew Usage Models


Intel® Personal Internet Client Architecture Intel® Personal Internet Client Architecture (PCA)(PCA)

Standard Interface

Memory

Intel® Flash Memory

Intel® FlashSoftwareCommunication

s Intel Base band chipsets

WithMicro Signal Architecture

Compute

Intel® XScale™ Microarchitecture

Standard Building Blocks for Standards-based Devices


Cellular and Handheld Investment AreasCellular and Handheld Investment Areas

• Hardware (Core)Hardware (Core)– DSP, Tools, IP, Intel® XScale™, Flash / SRAMDSP, Tools, IP, Intel® XScale™, Flash / SRAM– RF / PA, Baseband / Dual Mode, Mixed Signal, Soft RadioRF / PA, Baseband / Dual Mode, Mixed Signal, Soft Radio– LP Peripherals/Bluetooth, Power ManagementLP Peripherals/Bluetooth, Power Management

• SoftwareSoftware– Platforms, OS, drivers, IPP, compilersPlatforms, OS, drivers, IPP, compilers– Java, WAP, MMSJava, WAP, MMS

• Ecosystem (Differentiators)Ecosystem (Differentiators)– Position Location, synchronization, voice recognitionPosition Location, synchronization, voice recognition– Entertainment, video, multimedia, music, eMailEntertainment, video, multimedia, music, eMail– 802.11/WAN 802.11/WAN – Antenna, mobile battery, peripheral appliancesAntenna, mobile battery, peripheral appliances– Billing, roaming, securityBilling, roaming, security







Importance Of Storage To IntelImportance 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)


Storage Market Segment SummaryStorage Market Segment SummaryToday…• 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

Tomorrow…• 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

LAN

Workstation / Performance DT

Servers

SAN SwitchesSAN Switches

External RAIDExternal RAIDArraysArrays

Storage Area Network(SAN)

Storage Storage ArraysArrays

Three Storage Platforms

Network AttachNetwork AttachStorage (NAS)Storage (NAS)

Direct Attached Storage (DAS)

Servers

• Estimate of all system level opportunities at ~$60B TAM• Intel specific BB opportunity SAM at ~$8B


Investment ObjectivesInvestment Objectives• Enhance Intel Silicon platforms for Storage (Ecosystem)

– Development tools, middleware, RTOS , Pre-validated IP & s/w stacks, co-processors

• 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







802.11 Explosive Growth802.11 Explosive Growth802.11 Chipset Sales

('000 Units)

0

10,000

20,000

30,000

40,000

50,000

60,000

2002 2003 2004 2005 2006

2.4GHz 5.2GHz Dual-band

Source: ICG Market Model


Achieving Our Vision:Achieving Our Vision:Optimizing the PlatformOptimizing the Platform

• Wi-PCWi-PC – Goal: >50% wireless embedded NIC in ’03Goal: >50% wireless embedded NIC in ’03– Aggressive joint marketing, 3Aggressive joint marketing, 3rdrd party alliances and MDF $ party alliances and MDF $

• Platform integrationPlatform integration– Validated, stable system w/the heavy qual. & test lifting done by IntelValidated, stable system w/the heavy qual. & test lifting done by Intel– Unique features & performance (e.g., lowest latency QoS)Unique features & performance (e.g., lowest latency QoS)– Lower costLower cost

CPU

Memory I/O

GraphicsGraphics

Wired LANWired LAN

Today’sToday’sPlatformsPlatforms CPU

Memory I/O

GraphicsGraphics

Wired LANWired LAN

2002+2002+PlatformsPlatforms

WirelessWirelessLAN, WAN, PANLAN, WAN, PANWireless Wireless

LAN, WAN,LAN, WAN, PANPAN

Working to define the next gen Wi-PC specWorking to define the next gen Wi-PC spec


Banias – A New Wireless EraBanias – A New Wireless Era• Biggest product launch in Intel’s historyBiggest product launch in Intel’s history

• First product designed from the ground up First product designed from the ground up for mobile computersfor mobile computers

• Integrated platform designs with wireless Integrated platform designs with wireless (“born wireless”)(“born wireless”)

• Massive marketing campaign to build the Massive marketing campaign to build the brand and create wireless associationbrand and create wireless association

• Key programs in the Mobile Platforms GroupKey programs in the Mobile Platforms Group

– Mobility Enabling ProgramMobility Enabling Program

– Infrastructure Enabling ProgramInfrastructure Enabling Program

• Driving the ecosystem for successDriving the ecosystem for success


Mobility Enabling Program ElementsMobility Enabling Program Elements

* Other names and brands may be claimed as property of others

2003 Target2003 TargetOptimizeOptimize

The PlatformThe PlatformTo DeliverTo Deliver

Best MobilityBest Mobility

An example:An example:Banias ProcessorBanias Processor

Windows XPWindows XP802.11 Dual Band802.11 Dual Band

Bluetooth* Wireless TechBluetooth* Wireless TechQuick ConnectivityQuick Connectivity

CAPI Based SecurityCAPI Based Security 1.2” (2 spindles)1.2” (2 spindles)

4.5 lbs (2 spindles)4.5 lbs (2 spindles)4.5 – 6.0 hrs battery4.5 – 6.0 hrs battery

Platform GuidelinesPlatform GuidelinesSuggested Ways toSuggested Ways to

Deliver on the 4 VectorsDeliver on the 4 Vectors

Platform GuidelinesPlatform GuidelinesSuggested Ways toSuggested Ways to

Deliver on the 4 VectorsDeliver on the 4 Vectors

Wireless StacksWireless StacksDeliver Seamless SecureDeliver Seamless SecureConnectivity ExperienceConnectivity Experience

Wireless StacksWireless StacksDeliver Seamless SecureDeliver Seamless SecureConnectivity ExperienceConnectivity Experience

Platform EnablingPlatform EnablingExtend Intel’s ValidationExtend Intel’s Validation

Efforts to IncludeEfforts to IncludeBattery Life and WirelessBattery Life and Wireless

Platform EnablingPlatform EnablingExtend Intel’s ValidationExtend Intel’s Validation

Efforts to IncludeEfforts to IncludeBattery Life and WirelessBattery Life and Wireless

Wireless StacksWireless StacksJust WorkJust Work

BKMs toBKMs toDeliver MobilityDeliver Mobility

Platform is ValidatedPlatform is ValidatedFor MobilityFor Mobility

Multi-Year Program to Accelerate Transition to MobilityMulti-Year Program to Accelerate Transition to MobilityMulti-Year Program to Accelerate Transition to MobilityMulti-Year Program to Accelerate Transition to Mobility


Infrastructure Enabling ProgramInfrastructure Enabling Program

* Other names and brands may be claimed as property of others

2003 Target2003 Target

Multiple Multiple Venues for Venues for Connecting Connecting

Banias Banias platforms platforms wirelesslywirelessly

HotspotsHotspotsPromote with network operators, Promote with network operators,

WISPs through marketing WISPs through marketing and technical enablingand technical enabling

HotspotsHotspotsPromote with network operators, Promote with network operators,

WISPs through marketing WISPs through marketing and technical enablingand technical enabling

EnterpriseEnterpriseBlueprint programs Blueprint programs

with system integrators, with system integrators, OEMs, including security.OEMs, including security.

EnterpriseEnterpriseBlueprint programs Blueprint programs

with system integrators, with system integrators, OEMs, including security.OEMs, including security.

HomeHomePromote with operators, Promote with operators,

BB service providers BB service providers & OEMs for residential use.& OEMs for residential use.

HomeHomePromote with operators, Promote with operators,

BB service providers BB service providers & OEMs for residential use.& OEMs for residential use.

Corporate WLAN Corporate WLAN deployment pilotsdeployment pilots

Select hotels, airports, Select hotels, airports, etc.etc.

Broadband + WLAN Broadband + WLAN promotionspromotions

Multi-Year Program to Accelerate Transition to MobilityMulti-Year Program to Accelerate Transition to MobilityMulti-Year Program to Accelerate Transition to MobilityMulti-Year Program to Accelerate Transition to Mobility


0

20000

40000

60000

80000

100000

120000

140000

160000

2000 2001 2002 2003 2004 2005 2006

Asia

Europe

US

802.11 Hotspot Growth802.11 Hotspot Growth

17K

37K

65K

98K

144K

7K

Source: BWCS Ltd. 2002Source: BWCS Ltd. 2002


AgendaAgenda






Intel Capital SummaryIntel Capital Summary

• Focus on Focus on Financial & StrategicFinancial & Strategic success success

• One of a few credible corporate investorsOne of a few credible corporate investors

• Very experienced, value add complement VC’sVery experienced, value add complement VC’s

• Investment strategies complement successful teamsInvestment strategies complement successful teams

Continue to work with TelesoftBring us your ideas and inspirations!

Continue to work with TelesoftBring us your ideas and inspirations!

Intel Intel CCapitalapital

BackupBackup


Investment PressInvestment Press

“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 EditorThe Corporate Venturing ReportMarch 2001

“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

Economy & Finance

Strategic Thinking: Creating an Investment Strategy