DRIP PORTFOLIO
Intel's Acquisition Spree
We now own "GIGA" as Intel consolidates to dominate

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By Jeff Fischer (TMF Jeff)
March 22, 2000

In the past year, Intel (Nasdaq: INTC) has acquired about a dozen companies at a total cost that probably tops well over $5 billion. One of the largest acquisitions happened last fall, when Intel bought DSP Communications for $1.6 billion. In the past four weeks alone, however, Intel has spent even more than $1.6 billion in cash and stock to slurp up three new businesses, like a giant aardvark slurping up so many ants.

By watching what a company acquires, and where it invests, you can learn about the company's focus regarding future initiatives. So, consider what Intel has purchased in just the past month.

On February 24, Intel announced that it would acquire privately held Voice Technologies Group for cash. The dollar amount of the transaction was not disclosed. The acquisition was made to improve the offerings of an existing subsidiary business at Intel, a business called Dialogic. Even as an Intel shareholder who thought that you knew the company very well, are you asking, "What the heck is Dialogic?"

You weren't? Well, I was.

Dialogic provides solutions for the converging Internet and telecommunications market. The company's products are used for voice, fax, data, speech recognition and synthesis, call center management and Internet Protocol (IP) telephony applications. Still confused? Perhaps a visit to the company's website at www.dialogic.com will help. As an Intel shareholder, you own this company. (Did you know that you owned Dialogic? Don't feel too badly if you didn't.) Click here for the press release about the Voice Technologies Group acquisition -- another company that we'll soon own through Intel.

Next up, on March 15, Intel announced that it would acquire GIGA A/S (which sounds like a Japanese rock band) for approximately $1.25 billion in cash and stock. Far from being a local boy, GIGA is headquartered in Denmark. What is attractive about GIGA? The company designs high-performance networking chips that enable the build-out of fibre optic networks. Founded in 1998, ol' GIGA specializes in advanced high-speed communications chips that are used in optical networking and communication products, which in turn direct traffic across the Internet and corporate networks.

Cool, eh? We think so. Here is the press release detailing Intel's purchase of GIGA. (You go, GIGA!)

Finally, yesterday Intel shared that it would acquire Basis Communications Corporation for approximately $450 million in cash and stock options. Akin to GIGA, Basis designs and sells advanced semiconductors and related products used in equipment that directs traffic across the Internet and corporate networks. Basis also sells software and network processors used in local area networks (LAN), which are targeted at home office and small and medium-sized businesses. Intel "plans to incorporate Basis' network processor technology into the Intel Internet Exchange (IX) architecture in order to pursue [DSL and data-over-cable related] opportunities."

That's a mouthful. As shareholders, we trust that it ain't hot air.

Basis Communications also sells wide area network (WAN) semiconductor products and PC card and interface controller devices. Click the following link to see the press release detailing the Basis Communications purchase.

As you may surmise, we could spend the rest of the year getting to know the new ins-and-outs of the ever-growing Intel, and as investors, we should. We'll do our best, anyway, to understand its quickly changing business. What Intel is essentially doing is what many leading companies do, from Amazon.com (Nasdaq: AMZN) to America Online (Nasdaq: AOL). That is, they "consolidate to dominate." I wrote about this in a recent Rule Breaker column titled "I'm a Fool"

Essentially, if you wanted to buy several of the best Internet companies in the mid 1990s, but you could only buy one, you could not have topped AOL for both its eventual size and scope. By merely buying AOL, you soon came to own CompuServe, ICQ, Netscape, and more as AOL "consolidated to dominate" its industry. Amazon has taken the same route in the e-tailer industry, buying large stakes in many e-tailers. Intel is working to accomplish the same thing in important semiconductor and networking industries -- consolidate to dominate. We like that. Hopefully, we'll be very happy owners of GIGA, Basis and Voice Technologies Group.

Intel's stock now trades at over 60 times earnings, far above the 20-something P/E multiple that it had as we started to buy it. In 1997, we argued that the stock deserved a higher multiple to earnings. I wouldn't argue for that right now!

Intel is the fourth-most-valuable public company in the world after today's advance. The stock has soared all year, lifting our humble Drip Port with it. We're not only stomping the S&P 500 when the index is dollar cost averaged, we're beating the straight S&P 500, too! That's difficult to believe, given that we invest new money monthly. This "celebration" aside, it seems unfortunate to watch so much of the potential future value get squeezed out of Intel's stock so quickly this year. Even so, I'm pretty confident that as we continue to regularly buy shares, we'll get more buying opportunities at lower prices. Or so we'll hope!

To discuss Intel, please visit the Drip Companies board linked below. Fool on!

--Jeff Fischer, TMF Jeff on the boards.

Drip Portfolio

3/22/00 Closing Numbers
Ticker Company Dly Pr Chg Price
CPBCAMPBELL SOUP-1 11/16$29.69
INTCINTEL CORP5/8$144.06
JNJJOHNSON & JOHNSON11/16$81.94
MELMELLON FINANCIAL CORP1/4$32.75

  Day Week Month Year
To Date
Since
7/28/97
Annualized
Drip 2.62% 6.60% 19.93% 26.84% 64.79% 20.72%
S&P 500 .45% 2.47% 9.82% 2.14% 59.85% 19.34%
S&P 500(DA) .45% 2.47% 9.82% 2.14% 62.47% 20.07%
S&P 500(DCA) n/a n/a n/a n/a 32.19% 11.09%
NASDAQ 3.25% 1.39% 3.58% 19.55% 209.94% 53.17%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
9/8/9722.9859INTC45.653$144.06215.56%
11/14/9713.323JNJ79.310$81.943.31%
11/5/9831.5773MEL34.290$32.75-4.49%
4/13/988.269CPB54.401$29.69-45.43%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
9/8/9722.9859INTC$1,049.37$3,311.41$2,262.03
11/14/9713.323JNJ$1,056.65$1,091.65$35.01
11/5/9831.5773MEL$1,082.79$1,034.16($48.64)
4/13/988.269CPB$449.84$245.49($204.35)
  Cash: $24.47  
  Total: $5,707.17  


Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.

Note
Drip Port launched with $500 on July 28, 1997, adds $100 to invest every month, and the goal is to own $150,000 in stock by August of the year 2017. Due to the slow nature of dollar-cost-averaging and our relatively significant starting costs, we do not expect to seriously challenge the S&P 500 for the first three to five years as we build an investment base. The long-term advantages of dollar-cost-averaging still overcome the short-term disadvantages, however. Final note: our investment in Campbell Soup is frozen due to fees instituted in its investment plan. Click here for a history of all Drip Port transactions.