SAN FRANCISCO—Intel Corp. will pay rival Nvidia Corp. $1.5 billion over the next five years as part of long-term patent cross licensing agreement that resolves outstanding litigation between the two companies in Delaware, the companies said Monday (Jan. 10).
Under the agreement, Intel (Santa Clara, Calif.) receives a license to Nvidia's patents, while Nvidia gets a license to some of Intel's patents. But x86 and certain other products are not covered under the agreement, Intel said.
This excludes Intel's proprietary processors, flash memory and certain chipsets for the Intel platform, Nvidia said. The company has previously said it would no longer make graphics chip sets for Intel x86 processors.
"This agreement ends the legal dispute between the companies, preserves patent peace and provides protections that allow for continued freedom in product design," said Doug Melamed, Intel senior vice president and general counsel, in a statement. "It also enables the companies to focus their efforts on innovation and the development of new, innovative products."
Jen-Hsun Huang, Nvidia's president and CEO, said in a conference call that the deal signifies that importance of graphics processing to the PC space and beyond, particularly as more mobile devices with advanced capabilities flood the market. "For all computing platforms, [the GPU] is simply a must have," Huang said.
Paul McWilliams, editor of the technology investment newsletter Next Inning Technology Research, said in a report circulated to subscribers that the deal amounts to "more or less a successful extortion play" by Nvidia. McWilliams said he thought the market will view the deal as favorable for both companies.
Craig Berger, an analyst with FBR Capital Markets, said Intel likely concluded that it owed Nvidia some compensation given that Nvidia is not developing future x86 chip sets and Intel is utilizing more integrated graphics technology in its second-generation Core products and others. The existing cross-license agreement between the two companies was set to expire in March, Berger noted.
"Essentially, we believe this $1.5 billion payment is piece of mind against future litigation for [Intel,] as it utilizes more graphics capabilities going forward," Berger wrote in a research report circulated Tuesday.
In 2009, Intel and Nvidia traded lawsuits over whether Nvidia's existing agreement with Intel gave the company the right to build chipsets for products based on Intel's Nehalem architecture. The companies, who have long collaborated with each other to ensure that Nvidia graphics chip sets were available for Intel microprocessors, are increasingly seen as competitors in several areas, particularly as Nvidia pushes into the applications processor space with its ARM-based Tegra chips and moves forward with an initiative to create ARM-based microprocessors.
Last week, Nvidia announced that it intends to build high-performance microprocessors for applications ranging from PCs and servers up to workstations and supercomputers based on an architecture license from ARM Holdings plc. The project, codenamed "Project Denver," will feature an Nvidia processor running the ARM instruction set, which will be integrated with an Nvidia GPU array. Nvidia provided few details on the project.
Also last week, Microsoft Corp. said next version of its Windows operating system will support ARM-based chips, confirming months of speculation that the software giant would broaden support for Windows beyond x86 platforms. Nvidia was one of three chip vendors—along with Texas Instruments Inc. and Qualcomm Inc.—identified as partners that would make ARM-based SoCs that will run Windows.
Monday's agreement releases both Intel and Nvidia from legal claims made by the other, including claims of breach of their previous license agreement.
Intel said the payments to Nvidia would be recognized as a liability totaling approximately $1.4 billion. The company said it recognized an expense of $100 million in the fourth quarter of 2010, as a portion of the settlement. The remaining amount, approximately $1.3 billion, will be recognized as an intangible asset in the first quarter of 2011 and will be amortized into cost of sales over future periods, Intel said.
In a conference call with analysts Monday, Nvidia executives reiterated that the company has no intention of building chip sets for Intel processors going forward.