Intel to Buy Chip-Making Operations From Digital

Intel Corp. and Digital Equipment Corp. reached a sweeping settlement to end their acrimonious patent dispute, with Intel buying Digital’s chip-making operations for $700 million in a deal seen as a victory for Digital.

Intel will also make additional undisclosed payments to Digital over several years as part of a broad 10-year cross-licensing pact. One source close to the talks said the deal is worth more than $1.5 billion to Digital, though officials at both companies declined to comment.

“This agreement is a win-win for both companies and our customers,” Digital Chairman Robert Palmer said in a conference call with analysts and reporters.

“Digital and Intel have been doing business for more than two decades, and this agreement makes sure our positive relationship will continue in the future,” he said.

Digital will sell its semiconductor operations, including three facilities, to Intel, and it will retain its Alpha and Alpha-related semiconductor design teams to develop future versions of the microprocessor. For years, Digital sought to rival the Intel chip architecture with Alpha but never succeeded. Alpha is used as a high-end processor in powerful workstation computers and servers running the UNIX operating system and Windows NT.

Santa Clara-based Intel, the world’s biggest chip maker, will manufacture and sell the Alpha technology and other non-Alpha semiconductors developed by Digital, including its StrongArm processor, which is used in low-power portable devices and network computers.

The companies were mum on any further financial specifics surrounding the deal, but said they expect the arrangement to be approved by U.S. regulators within three to six months.

Analysts said the deal is worth between $1.5 billion and $1.6 billion to Digital, including the undisclosed licensing payments Intel will make.

“But these will be immaterial from a financial standpoint to Intel,” said Craig Barrett, Intel’s president and chief operating officer.

“I think it’s still worth $1.6 billion,” said Ashok Kumar, an analyst at Loewenbaum & Co. “If you look at the licensing payments, plus discounts on the x86 [Intel’s] processors to Digital, it all amounts to $1.6 billion.”

Analysts have compared the settlement, which had been widely expected, to Microsoft Corp.’s $150-million investment in Apple Computer Inc. earlier this year--a move by a dominant company to keep one of its few rivals alive.

Digital’s lawsuit alleged Intel was infringing 10 Digital patents.

Intel followed with a suit of its own, demanding that Digital return top-secret intellectual property documents that Digital had been privy to as an Intel partner. Digital is also a customer of Intel, buying its microprocessors.

Under the settlement, Intel will acquire DEC’s semiconductor manufacturing operations in Hudson, Mass., and development plants in Austin, Texas, and Jerusalem.

The companies said they will seek a court-ordered stay of the litigation between them.

Digital plans to develop a full line of systems based on Intel’s next-generation processor architecture, called IA-64, starting with the planned “Merced” chip in 1999.

Intel shares fell $4.38 to $75.63 on Nasdaq, where it was the second-most-active issue, before trading was halted. Digital fell $5.19 to $45.38 on the New York Stock Exchange before trading was halted.