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One Big Investor Might Have Special Cause to Worry: Intel

Investments contribute mightily to the chipmaker's bottom line. How will market woes hurt it?




to the list of investments that may suffer twice as the bottom falls out of the stock market.

As the


spirals downward, retail and institutional investors are checking out their portfolios, trying to figure out how much they've lost in stocks like Intel and



. But companies with large investment portfolios are doing the same thing, assessing how their own holdings have been hit by the 29% drop in the Nasdaq Composite so far this quarter.

Gateway, for instance, said Wednesday it would write off $200 million in investments. And

Salomon Smith Barney

on Tuesday reduced its earnings estimates for



, lopping $300 million off the market value of its private-equity portfolio.

Now Wall Street is wondering if Intel will be the next company to discover its wallet isn't as full as it was only two months ago.


Dan Niles, an analyst at

Lehman Brothers

, says there's clearly a risk for Intel, which books its profits generated from stock sales under gains on investments, interest and other income. Intel includes this income in its earnings per-share numbers, and it fought hard last year for analysts to include the gains in their earnings estimates. (Analysts typically exclude gains and charges from their estimates.) Last quarter, for instance, Intel booked $716 million in gains on investments and $250 million in interest and other income, and in the previous quarter that number was a total of $2.3 billion. (Lehman downgraded its rating on Intel Thursday to outperform from buy, and the firm hasn't performed recent underwriting for the company.) Intel's stock fell 11% today.

"Obviously for any of these quarters, there could be a risk to gains on investments. They are like any other fund manager," Niles said.

In this environment,

Intel Capital

, which runs Intel's two funds that contain its vast holdings, could sell some of its stock if it thinks the losses have gotten too extreme, could sell more than expected to come up with the figure it has held out to Wall Street, or hold on to the stocks in hopes of a long-term rebound.

Intel spokesman Robert Manetta says the company hasn't changed its guidance from the $950 million in investment gains, interest and other income it estimated in mid-October that it would book during the fourth quarter. About three-quarters of that will come from investments, Lehman's Niles estimates. For next year, Niles' estimates still include about $2.8 billion on gains in investments for the year, or about 27 cents a share on total earnings of $1.65 a share.

Vast Holdings

Intel's two funds own pieces of private companies, as well as stocks in more than 500 publicly traded companies. The venture was started about 10 years ago to make strategic investments in companies -- often prior to their

initial public offerings -- that have products and services that fit with Intel's own business. So, many of the company's investments are in tech names traded on the Nasdaq -- the same ones that have gotten so beaten up lately. "Our reason for investing and our reason for disposing of a holding, either partly or wholly, is based on strategic reasons," Manetta said. Because Intel got in before the IPO in some cases, it could still be ahead despite a sharp decline in the stocks.

So far this quarter, regulatory filings show that Intel has reduced holdings in at least four different companies, with the largest sales being in


operating-system server maker

VA Linux


and fiber-optic product company

New Focus


. New Focus shares have fallen 78% this quarter, while VA Linux is down 81%. It's unclear what Intel may have gained or lost on those sales because the company doesn't release what it initially paid for stakes.

Unlike Chase, Intel doesn't include in its bottom line unrealized gains or losses, which reflect the gains or losses in market value of the securities it holds. But Intel's balance sheet will show at the end of this quarter how much the value of its investments has declined. At September's end, Intel's portfolio was worth $5.86 billion, $4.55 billion of which was in marketable securities, or securities the company could sell.

Gateway's $200 million charge was designed to cover the losses associated with its investments in technology companies. But Gateway's overall investments aren't much of a guide for Intel. As of Sept. 30, Gateway's marketable securities alone were valued at about $133 million, only a fraction of Intel's portfolio.