| First Digital sued Intel in May. Then
Intel sued Digital in August. Now it looks like the two companies may have found a way to
settle things amicably. The deal involves Intel buying Alpha microprocessor technology --
and Digital's silence -- for $1.5B. |
Two previous SIGPC musings (Digital Sues Intel
Over Pentium Patent Infringements and Lawsuit Inside:
Intel Sues Digital) described ongoing litigation between Digital and Intel. In
May, Digital launched a law suit against Intel, claiming Intel had infringed on 10 patents
in their Pentium, Pentium Pro, and Pentium II chips. In August, Intel struck back with a
much-anticipated counter suit against Digital, alleging infringements on 14 Intel patents
by Digital. Well, its looks like there may yet be a path out of the legal woods: It was
reported last week that Digital was considering licensing its Alpha microprocessor
technology to Intel for $1.5B.
For both Digital and Intel, the deal might put an end to the ongoing patent lawsuits.
Digital would be relieved of its costly investment in Alpha. Intel, flush with cash from
its booming chip business, would gain access to Alpha technology that
might--legitimately--make it into future Intel microprocessors.
The $1.5B settlement has several parts. Intel would "buy capacity" at
Digital's manufacturing operations in Hudson, MA for $650M and produce the Alpha chip for
several years. Digital would continue to use the plant to produce its StrongARM RISC chip.
The plant has been running with excess capacity for some time now.
Intel would also pay Digital $200M to license the rights to use Alpha for its own
purposes. Note that there is no onus on Intel to market the Alpha chip. Digital would also
get $100M a year for about seven years. This would come in the form of discounts based on
volume price reductions on both Alpha and Merced microprocessors.
Merced is the code name for the next generation microprocessor, due in 1999, being
jointly developed by Intel and H-P. A sneak peek at Merced was provided this week at a
microprocessor conference in California, where the 64-bit technology was given the moniker
EPIC, for "Explicit Parallel Instruction Computing". The agreement might be a
way for Digital to gracefully retire Alpha and transition more to Intel-based processors,
especially Merced.
Although Digital sells high-end workstation PCs using their Alpha technology, they also
sell PCs built using Intel's Pentium products. In yet another example of the relative
importance of technological merit versus marketing, Alpha has had trouble competing
against Intel's chips. Digital may use this arrangement as a way of throwing in the towel
for processor design -- a very costly and potentially risky endeavor. To my mind, this is
analogous in some ways to Apple's diminishing reliance on in-house R&D. Apple's recent
partnering arrangements with Microsoft and the fact that they are closing down the Apple
Advanced Technology Group are witnesses to the changing nature of the PC industry.
It was originally rumored that Digital was going to sell its Alpha technology outright
to Intel. A flurry of customer questions about Digital's commitment to Alpha forced
Digital to release a letter of clarification on October 9. The letter stated that Digital
and Intel would cross-license the microprocessor technology. It also emphasized Digital's
commitment to Alpha technology in the future, but acknowledged the growing importance of
Intel's x86 architecture in the PC marketplace.
With Digital out of the picture, only Sun's SPARC technology and perhaps the
IBM/Motorola PowerPC chip will be competing head-to-head with Intel's Pentium line. Even
Silicon Graphics is switching to Intel-based Windows NT, shifting away from its MIPS
architecture.
FTC approval would be needed before Intel could acquire Alpha. This might be difficult
given the recent investigations into Intel by the FTC over alleged business
irregularities. Intel is the nation's No. 1 PC chip maker and Digital is the nation's No.
4 computer maker. But given Alpha's small market share, the FTC discussion probably won't
last very long. Digital's shares rose 9%, or $4 a share, when the story broke on October
6.
Don't cry for the litigation lawyers; they still have to pore over the details of this
arrangement (with the engineering staff) before its can go through. The legal counsel of
both Digital and Intel have enough work ahead of them to remain employed for a little
while yet.
Related information:
From C|Net, SunWorld, Wall
Street Journal, ZDNNews, and other sources. |
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