Intel's Expensive WiMax Habit

The chipmaker had no choice other than to add a $1 billion investment to the Sprint-Clearwire wireless network.
By Alexei Oreskovic ,

SAN FRANCISCO --

Intel

(INTC) - Get Report

doubled down on its WiMax bet Wednesday, plunking $1 billion into the nascent high-speed wireless network championed by

Sprint Nextel

(S) - Get Report

and

Clearwire

(CLWR)

.

But the real story behind Intel's big-ticket investment is that the chipmaker really didn't have any other choice.

The deal was as predictable as a desperate craps player's visit to the ATM: Intel had too much riding on WiMax to walk away from the table, a situation that

TheStreet.com

foresaw in October

.

In fact, investors may actually be relieved that Intel only parted with $1 billion for its WiMax obsession.

The network might ultimately turn out to be a smash hit and Intel's deal a great investment. The need for high-speed wireless access to data is real enough, particularly as consumers and businesses embrace a new generation of mini notebooks and feature-rich cell phones.

And the WiMax trials under way in numerous foreign countries, particularly in Asia, seem promising.

But in the U.S., one of the most crucial markets, WiMax was anything but a

fait accompli

. Sprint, which was suffering from its own business meltdown, was clearly not keen on upholding the WiMax strategy laid out by its ousted CEO Gary Forsee. And Clearwire's deteriorating financial position put a huge question mark over the company's plans to build its own wireless network.

Meanwhile, competing wireless technology, like LTE, or the Long Term Evolution standard, were threatening to make WiMax obsolete if it didn't become available soon.

The problem is that Intel has based a good portion of its product development and business strategy on WiMax. Intel's new generation of notebook PC chips, to be released this quarter, incorporate WiMax capabilities. And Intel's venture capital arm, Intel Capital, has already invested $620 million in Clearwire, not to mention investing in 31 other WiMax-related deals around the globe.

To keep the WiMax dream alive, at least in the U.S., Intel needed to toss WiMax a $1 billion lifeline, which along with investments by

Google

(GOOG) - Get Report

,

Time Warner Cable

(TWC)

,

Comcast

(CMCSA) - Get Report

and a few other partners will allow the new Sprint/Clearwire to build the infrastructure for a WiMax network.

A Closer Look

It's intriguing to consider what might have happened if Comcast, Time Warner and Google didn't sign on.

Might Intel have been willing to foot the bill for the entire project?

Intel Capital President Arvind Sodhani wouldn't speculate on that. But he noted that Intel had been in talks with both Sprint and Clearwire for about a year, and had indicated that it was ready to provide a large chunk of the necessary funding.

"We had indicated to both parties that we had a very large ability to invest a very large capital infusion into the combined entity," says Sodhani.

As it is, Intel Capital's $1 billion investment is the largest in its 17-year history. The average deal runs between $5 million and $20 million.

What's more, the total $1.6 billion invested in Clearwire alone now accounts for roughly 19% of the total $8.5 billion of investments that Intel Capital has made since it started in 1991.

According to Sodhani, the WiMax investments are in keeping with Intel Capital's mission of building "ecosystems" that support the adoption of new technology.

But the deal can also be viewed not only as a way to nurture a new technology that might eventually benefit Intel, but as a way to save Intel from poor business decisions.

That's a resource most companies don't have.

The question is whether it's a smart way for a company to make investment decisions.

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