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Applied Materials starts VC fund

The chip-equipment maker creates a fund to invest in companies trying to develop alternative manufacturing methods for semiconductors and optical communications components.

Applied Materials said Friday that it's creating a venture capital fund to invest in companies trying to develop alternative manufacturing methods for semiconductors and optical communications components.

With the fund, Applied Materials joins Intel, among major technology companies, in offering venture capital to start-ups. Applied Materials' Ventures 1 fund will focus on companies on the "leading edge of scientific and technical breakthroughs that can positively impact the semiconductor industry," the company said.

Applied Materials makes the equipment that semiconductor companies use to make their chips. The company said that by investing in start-ups it hopes to apply its manufacturing knowledge to the optical communications sector.

The decision to launch a venture capital fund comes at an odd time for Applied Materials. Venture capital funding--and its returns--has fallen as the initial public offering market has dried up. Meanwhile, tech giants such as Intel and Microsoft have posted heavy investment losses betting on new technologies.

According to Venture Economics and to the National Venture Capital Association, VC funding fell 42 percent in the second quarter compared with the first quarter. In the second quarter, 65 U.S.-based venture capital funds raised $9.7 billion, compared with $16.7 billion raised by 96 funds in the first quarter of 2001.

And the third quarter reports may not look much better. According to Growthink, a company that tracks venture capital investments, VC funding for the third quarter was $8.3 billion. Funding declined in every geographic region except the Northeast, where OpNext, an Eatontown, N.J., company, raked in $321 million.

Despite the VC downturn, some tech giants are still funding start-ups. Intel is the most active. Intel Capital funded 13 deals in the third quarter, ranking third behind J.P. Morgan Partners with 16 deals and Mellon Ventures with 14 deals, according to Growthink.