Small Bytes From Intel

For 2016, Intel wrote down and took a loss of $184 million on its investment in private companies. These are companies where Intel owns twenty percent or less and are of the type assumed to be part of Intel Capital.

Intel’s portfolio companies also declined in terms of fair market value. At the end of December 31, 2016, the private companies had fair market value of $2.4 billion. At the end of prior quarter, the fair value at $2.6 billion.

 

Google Ventures Beats Intel Capital

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Bill Maris, Former Head of GV

After the recent earnings season, it’s time to measure the corporate venture capital (CVC) units of two of the largest – Intel and Alphabet. In terms of deals, some say that Alphabet already has beaten Intel this year. But in terms of amounts invested, Alphabet passed Intel long ago.

GV and Google Capital make up Alphabet’s corporate venture capital units. Together, GV and Google Capital have invested close to $3 billion as of June 30, 2016. And so far this year, both together have invested $400 million.

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Source: Alphabet’s Form 10-Q

So far this year, Intel has only invested approximately $160 million. Overall, Intel Capital has invested $1.6 billion in its portfolio companies. But besides size, Intel lags behind Alphabet in terms of performance.

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Source: Intel Form 10-Q (Excludes Intel’s investments in Cloudera and Unispread)

In SEC filings, both Alphabet and Intel report the fair value of their portfolios. Alphabet values its CVC portfolio at $8 billion and Intel values its CVC portfolio at $2.5 billion. More importantly, Alphabet portfolio has built-in gains of $5 billion while Intel’s has only $820 million as show in the charts.

And here is where Alphabet really beats Intel. Built-gains are the hypothetical profit which could be realized if the entire portfolio was sold. Measured solely on rates of return, Alphabet has done a better job of investing.  And since both companies are using other people’s money, that probably matters more than number of deals.

 

Intel Capital’s Portfolio Decreases 10%

 

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Intel today (May 2th) released its Form 10-Q  for the quarter ended April 2, 2016. While everyone paid attention to other things, the most important number was the current valuation of Intel Capital’s portfolio companies. The valuation of the portfolio decreased by 10% from the quarter ended December 26, 2015.  

Inside Intel. Intel Capital’s portfolio was valued at $2.3 billion at the quarter end of April 2, 2016 while the portfolio had a value $2.5 billion at the end of December 26, 2015. Over the quarter, the portfolio declined by $200 million as estimated by Intel. Portfolio companies generally do not trade on public markets. Intel must value their  “non-marketable investments” using other valuation methods.

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Intel Capital did not make any significant investment in new companies over the quarter ended April 2, 2016. Total amount invested, $1.5 billion, remained the same during the recent quarter.

Power Failure. In addition, there were no write-downs, impairments, of the investments during the current quarter.  For accounting purposes, Intel would need to write-down an investment if there were  a significant change in the value of an investment.  Last year was an exception; Intel wrote-down $160 million of its Intel Capital investments.

Fund companies must also value their  investments and some on more frequent basis than Intel. For example, Fidelity updates its holdings on monthly basis. Last week, Fidelity raised the value of its holdings. Like to Intel, Fidelity and other fund companies must value their holding using other methods than market prices.

The difference, between the valuation of Intel and the mutual fund companies, is the life cycle of the company. Intel Capital is investing in early stage companies while the mutual companies are investing at the later stage companies.

More Chips? The chart below reflect the changes in the Intel Capital portfolio’s carrying value (CV) and fair value (FV) over the past two years. Carrying value is the actual amount invested in portfolio companies. The amount invested increased from $1.3 billion at the end of 2014 to $1.5 billion at the end of the current quarter. Intel investments in Cloudera and UniSpreadtrum were excluded from the reported amounts since the two companies  not Intel Capital portfolio companies.

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intel capital April 2, 2016 download