Intel and Digital Close to Settlement of Patent Dispute
Intel Corp. and Digital Equipment Corp. are close to announcing an out-of-court settlement of their patent dispute, valued at about $1.6 billion, possibly as early as today, analysts said.
Ashok Kumar, a Loewenbaum & Co. analyst, told clients Tuesday that the settlement includes an agreement allowing Intel to license Digital’s Alpha microprocessor architecture technology. Intel would also help Digital develop products based on the Alpha architecture.
In return, Intel would pay Digital about 50% of the settlement in cash and give Digital discounts on Intel microprocessors. Kumar estimates the discounts could be worth about $100 million a year--up to $700 million over several years.
“The draft [of an agreement] is in the very final stages,” Kumar said. “It’s in their best interest to bring it out before a hearing on Thursday,” he added, referring to a hearing in U.S. District Court in San Jose on Intel’s suit against Digital.
An Intel spokesman in Santa Clara confirmed that a hearing is set for that day but said he could neither confirm nor deny that the two were in talks to settle the dispute.
A spokesman for Digital in Maynard, Mass., declined to comment.
Both companies’ stocks advanced. Digital rose $2.25 to close at $51.25 on the New York Stock Exchange, and Intel rose $1.06 to close at $85.13 on Nasdaq.
When Digital sued Intel in May, alleging the company was infringing 10 of its patents, Intel followed with a suit of its own.
Kumar expects the financial impact on Intel to be minimal and does not expect the outright sale of Digital’s underutilized fabrication facility in Hudson, Mass., to be part of the deal.
Kumar said it is not clear what Digital and Intel will do with the plant that makes Alpha chips. Part of the discussions have included Intel either buying the plant or paying Digital for manufacturing capacity. Intel has no use for Digital’s Hudson fabrication plant because its process technology is outdated compared with Intel’s.
“It will be Nirvana if Digital can unload it,” Kumar said. “But Intel would have to retool it. It is an obsolete fab for them. [It could] be that it is a bone that Intel had to throw to Digital to please them.”
Kumar likened the settlement to Microsoft Corp.’s $150-million investment in struggling Apple Computer Inc., which many analysts said was a move to keep one of its few rivals in the operating systems arena alive.
“With this settlement, Intel kills two birds with one stone,” Kumar said. “Intel puts to rest the patent litigation and gets the [Federal Trade Commission] monkey off its back by providing a lifeline to the only semblance of processor competition.”
Late last month, the FTC said it was conducting a broad investigation of Intel’s business practices to determine if the semiconductor giant was unfairly restricting competition.
