Foundation Capital Bets On Intel’s Vulnerability

Foundation Capital’s Rich Redelfs competed against Intel for years before he became a venture capitalist, most recently as the CEO of Atheros Communications, a Foundation portfolio company that makes wireless semiconductors.

He thinks Intel’s monopoly, along with the Microsoft-Intel duopoly, is finally eroding for good, and he’s investing accordingly.

The software of choice for servers isn’t Windows anymore, he says — it’s the open-source LAMP stack (Linux, Apache, MySQL and Perl/Python/PHP) — and when Intel processors aren’t running Windows, they have to compete on performance like everybody else. The same goes for Intel in netbooks, which started out running Linux. More specialized processors that are not made by Intel are also going into PCs to handle digital cameras, audio and video, Redelfs explains, “and that hurts Intel because they’d rather have their processor running all the apps.”

Redelfs says he is under no illusions about Intel — the chip giant routinely pushes the limits on anti-competitive behavior (see today’s press release from the European Union on why it levied its $1.45 billion fine against Intel, which Intel has appealed) and renders startups harmless. Intel also competes fiercely by continuing to add features to its own processors.

Still, Foundation is talking to several hardware startups that are in stealth mode and has made several hardware investments, including Tensilica, whose technology goes into fingerprint readers and audio and video processors, and Quartics, whose video processors run in netbooks.

“In the third world, people don’t need to run Word or Excel — they want Internet access and they want to use their netbook as a TV,” he said. “Intel atom processors haven’t had the horsepower required to do that….The U.S. is not at the center of the world anymore for tech.”

Companies that start out by making specialized processors also don’t need as much capital and are cheaper to back. Tensilica licenses a chip core that’s built by other companies into higher level processors, and fabs like TSMC (Taiwan Semiconductor) stay right behind Intel in state-of-the-art manufacturing.

Capital is tight in Silicon Valley and chip startups have been having trouble getting funding, Redelfs says, but he’s sticking with his plan and betting that Intel’s dominance will wane.

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