Intel invests $100 million in start up. Is that the future of tech giants?

Who has seen the future? Well, Intel has. World’s biggest maker of computer chips believes future lies on cloud computing, the space where more emphasis is being put. And in the process, Intel would be parting ways with its old collaborations including Hewlett-Packard, Dell and IBM.

Soon, Intel's venture arm would announce its $100 million investment in cloud computing. Intel wants to make a $75 million equity investment in Mirantis, a startup specialising in open-source cloud software. Intel’s plan also includes another $25 million investment on bolstering its own resources for working with Mirantis-type products, several people familiar with the deal informed New York Times.

Intel was part of a $10 million investment round in the company in 2013 and last year joined another group of Mirantis investors.

Intel’s partners Hewlett-Packard, Dell and IBM also make this kind of software, called Open-Stack. But what Intel is doing is to depend on young start ups to help it achieve a competitive edge in the fast-growing market. Intel’s recent investment in Mirantis also shows how old time tech partners are gradually evolving as competitors and delivering a change in the industry.

Read more: Intel’s $100 million investment

Since April, five of the six companies that Cisco Systems has acquired or has announced its intentions to acquire have been in cloud systems. EMC, a tech giant that specializes in storing data, has for years owned a company called VMware, which makes software that is integral to cloud computing technology; now both EMC and VMware have invested in Pivotal Software, which works on cloud products.

But the advent of cloud-driven businesses like Google, Microsoft's Azure and Amazon Web Services, or AWS, which rents cloud capabilities to businesses, is shrinking the number of companies that would buy or even build machines using Intel's server chips.

"When you sell semiconductors to just a few cloud providers who buy at giant scale, you can be at the mercy of an AWS," Lydia Leong, an analyst specializing in cloud computing at the information-technology research firm Gartner told the New York Times.

Leong estimated that by the end of this year, one-fifth of the applications that companies build will be made on cloud systems, a number that she said would rise quickly.

"Google is already in the top five server manufacturers -they can have power over Intel." In other words, big customers can demand lower prices, and like any company, Intel does not want to rely on a handful of customers, particularly because it does not dominate the markfor chips that go into smartphones the way it once did the market for chips that run PCs.

Intel's server business is well worth protecting. In the last quarter, Intel's PC chip business shrank 14 % from a year earlier, to $7.5 billion, while data center chips, Intel's second-largest segment at $3.9 billion, grew 10 % in the same period.

Mirantis software is a so-called open-source product. It enables about 50 computer servers to function in concert, creating one flexible machine, but Intel wants Mirantis to eventually raise that to 1,000 servers.

The hope is that this software will make it easier for more companies to develop cloud computing systems. And among restive startups like Mirantis, there is an increasing sense that, now that the serious money is moving around, there are plenty of opportunities to work with giants both inside and outside the tech industry.

"Companies like AT&T and Goldman Sachs have realized that their future businesses are all enabled by software in the cloud," said Adrian Ionel, the chief executive of Mirantis. "It creates a lot of opportunities for new companies like us, because the old enterprise companies can't help them there."

Mirantis, based in Mountain View, California, has 750 employees, about 600 of whom are engineers who focus on improving its cloud operating system.

In addition to cash, Intel can also use its marketing muscle, and perhaps find some new allies. A few weeks ago, Intel announced that it was working with Google on software that would make it easier to deploy and manage applications across a global cloud network.

And Google is also working with Mirantis, said Craig McLuckie, product manager on the Google cloud. Other big companies, like Ericsson, the world's biggest telecommunications equipment provider, are also investors. Ericsson is also a Mirantis customer.


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