Intel Corporation

Intel Corporation harnesses and implements the many forms of technology to gain substantial profits in an ever-growing technological age. As we have seen throughout our lives, technology has grown faster than any other market segment known to man. Far less than a century ago we were showed our first personnel computer, whose primary function was for word processing and simple mathematical calculations. Now, with the growth of technology, we have improved those primary functions along with gaining computers that can surf the Internet, check email, and even fly planes.

Like any other life-changing event, technology had to be captured and sold to consumers who wanted to be on the edge of discovery. Intel Corporation strives to be the leader in the technological industry. In order for Intel to set this benchmark for themselves, they must constantly be aware of changing technology and have a fast and decisive response to new innovations. Intel incorporates their needs for awareness and response time by establishing venture capital programs. These programs not only finance suppliers for a stable source of quality suit for Intel’s design and manufacturing but also companies that show Intel the possibility for a future strategic advantage.

Berkeley Networks, a receiver of Intel’s financing, is a start-up company who is developing promising open switch architecture to compete with the routers and switches of the dominant market segment players. Through the strategic vision of Intel, Berkeley Networks is a promising investment into the future of networking interface. However, through numerous miscommunications between the managements of Berkeley Networks and Intel and the inquiry by an outside suitor for a possible acquisition of Berkeley Networks, there have been several problems. Keith Larson, manager of Intel’s Corporate Business Development Group (CBD), is faced with a major decision that can dramatically affect Intel’s position in network interfacing. It is the purpose of this paper to expose the relationship between Intel and Berkeley Networks and to propose a possible solution for Keith Larson.

What is Intel’s strategy with their venture fund?
Intel Corporation is faced with changing technological trends that it must understand and implement if it is to pose a serious strategic advantage in Intel’s market segments. Intel captures current and future technological trends through its efforts in venture capital funding. Through Intel’s capital stature, they are able to support, through their Corporate Business Development Group, staff that manage the variety of invents in technologies and services related to Intel’s product offering.

At first glance, Intel started to protect themselves with a stable source of quality inputs, for its design and manufacturing processes, by investing in external companies. This was a smart move by Intel because it allowed them, through their financing leverage, to clearly set a standard of what kind of inputs they desired through suppliers. The preemptive quality check assured Intel’s products the highest quality set to specifications.

Intel’s most important exploration into venture funding happened in the 1990’s where they started to adopt a “market eco-system” approach. With major technological innovations on the horizon, Intel smartly adopted polices of financing where they sought after software and hardware developers that related to Intel products, in turn creating opportunities for both parties. Intel’s CBD group focused their efforts on companies that would not necessarily provide a monetary return but companies that would support their strategic vision. Intel was making a great leverage move by aggressively growing their investment portfolios into companies where they can take advantage of their products on the basis that, “What does Intel get out of the money they supply?”

Very few start-up firms, which Intel was aiming at, had significant capital to support the necessary research and design needed to complete most projects. I believe Intel knew this fact and indirectly took advantage of these start-ups in order to protect their future interests in maintaining a competitive advantage in their market. With no other choice but to acquire loans and possibly fault on the loans, many firms, with cash flaunting in their face, accepted Intel’s offer with the promise that both companies would benefit. The end results in the venture fund between Intel and a start-up was one of two things: (One) Intel would realize that incorporating a startup into their own business would benefit them more than continually investing in an external company. (Two) As Intel continues to draw information from a start-up firm, the information will eventually become exhausted and as Steven Nachtsheim says, “It may realized that it’s time to cut bait when it no longer makes sense.”

Intel’s mission to acquire a diversity of external investments has led them to classify investments in two tiers. Tier one investments are those that provide Intel with a “direct” strategic impact and tier two investments provide Intel with “potential” strategic benefit. Intel’s obvious strategy in their venture funding is to satisfy their strategic interests into gaining insight into new technologies. While positive financial returns on investments are not frowned upon, Intel will compromise monetary value if an investment satisfies an interest in strategic importance. In opinion, behind Intel’s goodwill approach is a side where Intel is acquiring all aspects of their market segment and indirectly creating an environment where all competitors, without enormous sums of capital, cannot compete. Monopoly.

How well is that strategy working?
Intel’s venture funding strategy is working very well for them. Through their acquisition they have gained insight into many technologies that Intel itself does not want to work on. Intel knows that they are benefiting from their acquisitions because they are aggressively pursuing more acquisitions to diversify their portfolio. In return for their funding Intel receives the latest technological innovations and also puts themselves in a situation to dominate a particular market segment.

Why did Intel decide to invest in Berkeley Networks?
In the beginning, Yavatkar, one of Intel’s engineers, was trying to fade away from the vertical networking architecture and move Intel towards a more powerful horizontal networking architecture. Although both Intel and Berkeley Networks were using Microsoft’s Windows NT operating system, Intel themselves did not produce the switches needed to complete their project. Berkeley Networks, through the due diligence of Intel, proved to be much more advanced in their design of switches. Intel decided to invest in Berkeley Networks on the basis that Larson and Yavatkar’s review of the company and its products showed Intel valuable exposure to developments in programmable network technology that Yavatkar’s team had been working on internally, as well as the potential to indirectly spread the adoption of Intel’s new IA chips. The desired result would be the creation of a new market segment for Intel.

Berkeley Networks, with the use of Microsoft’s Windows NT operating system, was developing a breakthrough technology that was capable of generating new communications architecture. No other start-up company, including Intel, had the design or product that BN was working on. Berkeley Networks and Intel both understood the “potential” strategic success in this new communications arena. Intel’s indirect vision of controlling all aspects of technology led them to invest in BN because they felt an investment would not only grant them insight to BN’s technologies but also a controlling share of all products produced. Intel knew that if BN’s designs were adopted they would be the founder of a new revolution of networking technology. Intel saw this opportunity not only in a strategic matter but also in the future monetary rewards it would permit.

Why did Berkeley Networks invite Intel to invest?
Berkeley Networks was trying to improve the speed of feed into and out of a switch. BN accomplished this by loosely integrating Microsoft’s Windows NT operating system with their own programming tools. After a successful first round of financing, BN was now looking for a second round of financing to complete their project. Berkeley Networks founder, president, and CEO, Ravi Sethi was focusing his attention on a venture fund that would allow both firms to benefit from each other’s knowledge, skill and product base. The corporation of choice, for Sethi, was Intel.

Sethi believed that the relationship between Intel and Berkeley Network’s would enhance any products and create a synergy between the two firms. Aside from the corporate strategies that each of the firms discussed, Berkeley Network’s secretly wanted to use their relationship with Intel to get closer to Microsoft. Since Microsoft’s Windows NT operating systems was the base of BN’s switch architecture, Sethi wanted BN to have a strategic advantage over competition by having a backdoor into the system in which is was based upon.

What is Intel learning from its investment in Berkeley Networks?
The relationship between Intel and Berkeley Networks was different from any other relationship Intel had participated in, with the fact that the deal was compressed relative to Intel’s normal investment timetable. Although the deal was concluded in less time, Yavatkar’s support for the deal, backed by his technical discussions with BN engineers provided Intel with a degree of confidence. This degree of confidence, however, was short lived.

Prescribed by the short nature of the deal conclusion, there were many issues, not discussed in the deal completion process, which Intel would face. As Larson recalled, “there were no specific ‘gives or gets’ related to Intel’s licensing or OEMing of BN’s technology.” Intel found it very difficult to fulfill its goal of learning more about the switches and the horizontal networking technologies. Despite the fact that Intel was not allowed to serve on the board of BN, all information was acquired through direct meetings with BN’s engineers and/or management. Unknown by Intel, BN was intentionally withholding strategic information because they feared that the corporate conglomerate would take advantage of their technology and not give due respect. This strategic decision by BN created an ordeal of miscommunications that eventually led to a mass of dissatisfaction between the two.

Intel takes away from its investment in Berkeley Networks one major fact. Although BN showed to have potential strategic applications for Intel, no matter the circumstances, Intel needs to follow a strict set of guidelines when coming up with a venture plan. Intel should not have concluded the deal with BN in a shorter time frame. If conducted correctly, the investigation and deal processes of Intel might have revealed issues that pertained to Larson’s “give or gets.”

What is Berkeley Networks learning from Intel?
Berkeley Networks had an entirely different strategy than Intel. BN’s ultimate goal was to gain a closer relationship with Microsoft. The relationship between Intel and BN simulated a poker game where BN, for instance, would bluff its information and it was then up to Intel to decide what information BN provided and if that information was valid. Through this business poker game, Berkeley Networks learned that if you play your cards right, the underdog can get what they want by taking advantage of given situations.
What should Keith Larson do?

Keith Larson is faced with a decision that can have dramatic affects on Intel. Berkeley Networks has informed Larson that they have a serious suitor for an acquisition. Larson must take into account the circumstances of his decision alternatives. Larson can decide upon three things: (One) Drop Berkeley Networks completely and realize a lose, (Two) Invest in a third round of financing, hoping to attain more information, or (Third) bring Berkeley Networks into Intel.

Larson knew that Berkeley Network’s offered Intel one way toward their goal of a horizontal communications architecture that would feature Intel microprocessors as an important component. Larson also felt few people understood that the networking and communications industry had the potential to “horizontalize” large chunks of the industry and that he knew from Yavatkar that Intel was interested in BN’s architecture for internal switching projects; it is my recommendation that Larson purchase Berkeley Networks and bring them within Intel. The potential for BN to strategically help Intel was known from the beginning. If Intel purchased BN, they would no longer have any miscommunications between the two firms and no longer have to debate about the exchange or information. Acquiring the company also insure Intel that no other company can purchase them and use BN’s technology against Intel.

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