Jeff & Intel Investors - The Intel-Digital Equipment Deal May Get FTC Approval
The FTC may possibly "bless" this settlement this coming Friday.
Here comes StrongARM!
Paul
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Late news from The San Jose Mercury.
mercurycenter.com
FTC to approve Intel-Digital
Deal
BY TOM QUINLAN
Mercury News Staff Writer
The Federal Trade Commission is expected Friday to sign
off on the deal that ended the high-stakes legal confrontation
between Intel Corp. and Digital Equipment Corp., resolving
the second of three recent federal probes of the Santa Clara
chip giant.
Sources familiar with the investigation said the FTC has
decided to accept the settlement of Digital's patent
infringement claim against Intel without major modifications,
following five months of delay. Under the settlement, Intel
forged a patent cross-licensing arrangement with Digital,
bought a semiconductor manufacturing plant and acquired
the StrongARM processor, a popular low-cost chip.
It was never entirely clear why the FTC announced that it
would review the agreement, although industry observers
speculated that the agency might object to the StrongARM
acquisition, which could help the dominant microprocessor
company push into new markets.
The FTC's interest may also have been piqued by Digital's
allegation that Intel was using its market power to keep
Digital from pursuing the court case. At the time of the suit,
27 percent of Digital's revenues came from computers that
incorporated Intel chips.
The FTC could still decide to delay the announcement, as it
did several times before finally disclosing its approval of
Intel's purchase of graphics chip developer Chips &
Technologies Inc. earlier this year. But sources say there has
been no hint that the agency has significant concerns about
any aspect of the agreement.
Neither Digital nor Intel would comment on the possibility of a
Friday announcement, beyond saying that they hoped the
FTC would issue a ruling shortly.
A favorable outcome in the Digital probe would be welcome
news indeed for Intel, which has suffered through a rocky
1998 so far, with sales and profits lagging.
''This would represent a real coup for Intel,'' said Rob
Enderle, a senior industry analyst for the market research
firm Giga Information Systems in San Jose. ''The smart
money was betting the FTC would take away StrongARM at
least.''
However, Intel's legal troubles are far from over: the FTC is
continuing a broader probe of possible antitrust violations.
And earlier this month, a federal district court judge in
Alabama rebuked Intel's business practices in a case
involving the chipmaker's dispute with Intergraph Computer
Corp.
As a practical matter, approval of the Digital settlement does
one particularly important thing for Intel. It gives the company
a processor that should greatly enhance the low end of its
line.
''They didn't have anything suitable for the handheld segment
of the marketplace, and they had nothing for the emerging
class of intelligent information appliances like set top boxes
or web browsers,'' Enderle said. ''This agreement gives
them that.''
The StrongARM processor is already used in hand-held
computers such as Apple Computer Inc.'s recently
discontinued Newton line and similar products from Psion.
It's also being targeted toward consumer devices such as
digital phones and cable television set top boxes.
Digital developed that chip under license from Advanced
Risc Machines Ltd. -- a joint venture of Apple Computer Inc.,
British-based Acorn Computers Ltd. and VLSI Technology
Inc. Following the settlement with Digital, Intel also readied an
agreement with ARM for the rights to the processor, pending
FTC approval.
Filed in May, Digital's patent infringement suit against Intel
was the first public hint of what has since become a wider
debate over how Intel competes.
The Maynard, Mass. computer company accused Intel of
using Digital's semiconductor designs to improve the
performance of the Pentium and Pentium Pro line. But when
Intel moved to cut off Digital's supply of technical information
and chips, analysts predicted that Digital would be forced to
back down. A settlement was announced in October.
In addition to the StrongARM deal, the agreement calls for
Intel to buy Digital's semiconductor operations for $700
million. It also gives Digital an undisclosed amount --
estimated by sources to be $100 million to $200 million -- as
part of a cross-licensing agreement, and additional benefits
that could include a price break on processors Digital buys
from Intel. Ultimately, these discounts could bring the value of
the deal to $1.5 billion, sources said.
Intel also agreed to manufacture Digital's Alpha processor on
a contract basis for at least the next five years. Since the
settlement, Compaq Computer Corp. has agreed to acquire
Digital in a deal worth more than $9 billion.
For industry prognosticators trying to figure out where the
government stands on Intel's dominance of the market for
microprocessors, the Digital decision may further muddy
already murky waters.
It was widely expected that the FTC would use either the
Chips or Digital investigations to begin reigning in the chip
colossus. The FTC did take the unusual step of reserving the
right to reexamine Intel's acquisition of Chips, but it is not
clear whether it will do something similar in the Digital
decision. |
