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Intel sets up venture capital fund for China

Past Intel investments in the Asian nation have made clear both the potential and the pitfalls.

As Intel expands its reach into China, Intel Capital has established a $200 million venture fund to invest in companies there.

The fund will initially invest in companies concentrating on cellular communications, broadband applications for consumers and semiconductor design, but the focus will broaden over time. The companies, Intel hopes, will both increase the adoption of technology inside China and become exporters.

Intel Capital, now one of the largest VC firms in the world, seeks to get a return on its investments, but its primary objective is to jump-start companies that could help expand the number of places and ways computers are used. In the past, Intel has created specialized funds to help companies focusing on applications for its Itanium processor and consumer electronics.

Because financial return isn't the primary goal, the group makes a large number of investments--110 last year--and roughly 40 percent of those, a fairly high number, are made outside the United States.

"Six to seven years ago, it was pretty close to zero," Michael Aleles, director of portfolio marketing at Intel Capital, said of the foreign investments.

The Santa Clara, Calif.-based company has made a number of investments in China, and the history of those investments shows the potentials and pitfalls. Successes include AsiaInfo Holdings, which develops telecommunications software, and Chinacast Communications, which makes educational software.

At the other end of the spectrum, the CEO at one company that received Intel Capital funds invested the money in a house and other personal items, according to Claude Leglise, who recently retired from his position as vice president of Intel Capital. Another company that received Intel funds used the money to create shell companies to hide the investments.

A growing number of Chinese companies have gone public on U.S. exchanges in the past two years, with widely varying results. Shanda Interactive, a developer of online games, has seen its stock go from an $11 IPO price to more than $39, a return that tops Google in terms of percentage growth. By contrast, SMIC, which received more than $100 million in U.S. VC funds, has largely stayed flat.

In all, Intel has invested in about 50 companies in China since 1998. Current investments include BCD Semiconductor Manufacturing, an analog power-integrated circuit design and manufacturing company, and Comlent Holdings, a radio frequency chipmaker.

The announcement came at the Intel CEO Summit, an annual gathering of top customers and PC executives. The convention is taking place in Beijing for the first time and coincides with Intel's 20th anniversary of operations in China. Twenty years ago, the company had a small sales office. Now it runs testing and packaging facilities, invests in a variety of start-ups and employs 4,000. China accounted for sales of $4.65 billion for Intel last year.