October 21, 1997 6:10 PM PDT

Intel, Digital settlement could mean 64-bit convergence

If Digital Equipment and Intel settle their patent infringement cases this week, the settlement could mark Digital's convergence with Intel's 64-bit architecture, the foundation of Intel's next-generation Merced chip.

Apparently, under the proposed terms of settlement, Intel will pay Digital consideration worth $1.6 billion, with nearly half of the total coming in the form of soft dollars, processor discounts, and development and manufacturing assistance, a huge amount of nonmonetary consideration that would make sense only if Digital were planning to move away from its own Alpha architecture and toward Intel's 64-bit Merced chip.

"It makes sense only if Digital was planning to convert to IA-64 [Intel's 64-bit architecture] in the future," said Linley Gwennap, editor-in-chief of The Microprocessor Report. "It doesn't make sense that Intel would be 'fabbing' [manufacturing] the main competitor to Merced for an indefinite time.

"A big chunk of money is for discounts," he added, noting that the purported settlement terms require Digital to purchase millions of dollars worth of chips from Intel to receive the full value of the bargain.

Such a settlement to the highly publicized case would solve a number of dilemmas for each company, but would raise a red flag.

On one hand, Digital could rid itself of costly chip manufacturing capabilities and allow it to move away from increasingly isolated Alpha architecture relatively smoothly. For its part, Intel would be done with a highly public lawsuit in which the company has been accused of patent infringement and unfair business practices.

At the same time, such a settlement would clear out one more processor competitor at a time when the Federal Trade Commission is examining whether Intel engages in unfair, monopolistic business practices.

Despite these challenges, Gwennap and others state that the time and circumstances appear right for such a convergence. Digital is coming out with a 64-bit chip in 1998 called the 21264. Its successor, the 21364, is due in 2000 or 2001, near the same time Intel will release the second version of Merced.

Fred Pollack, director of the Measurement, Architecture, and Planning group at Intel, has said this second version of Merced will be far more powerful than the first Merced and thus have far more commercial appeal.

"Intel could put a few Alpha hooks in [the second-generation Merced]," said Gwennap, "I can see a transition plan that makes sense for Digital."

In the meantime, it is likely that Intel will create translation code so that Alpha applications can run on either processor, said Richard Belgard, a consultant with MicroDesign Resources. This would make Alpha a more viable platform for developers.

In any event, it appears that settlement of the case is moving along.

Ashok Kumar, an analyst with Lowenbaum & Co., said that negotiators are currently working out the final details of the settlement agreement. A settlement, he added, could be reported as early as tomorrow. "They are working on the bits and pieces of the final draft," he said.

In addition to the $1.6 billion Digital would receive in cash and future considerations, the two companies would sign a cross-licensing agreement under which Intel would license Alpha technology from Digital and assist it with future development.

Further, Intel could take over Digital's Hudson, Massachusetts, chip foundry, according to Belgard, who quipped "Intel needs a foundry and Digital doesn't."

Under such a settlement scenario, Intel would agree to manufacture Alpha processors for Digital at a discount, thereby reducing Intel's out of pocket payment.

A settlement at this time would also obviate the need for a number of hearings in two lawsuits currently pending between the two companies. On Thursday, a motion is scheduled to be heard in Intel's suit, brought in the U.S. District Court in San Jose, California. This suit, filed in May in retaliation of Digital's suit, seeks the return of information on Merced provided to Digital under a non-disclosure agreement.

Later in the month, the two parties are slated to appear in front of the judge in the main action filed in the U.S. District Court in Massachusetts. In this suit, filed in May, Digital alleged that Intel infringed upon its Alpha patents in creating Merced. Intel has filed a counterclaim.

Intel is an investor in CNET: The Computer Network.

 

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