3Dlabs licenses patent portfolio to Intel

In an effort to raise cash, graphics chip maker 3Dlabs Inc. has licensed its entire patent portfolio to Intel Corp., which in exchange bought a convertible subordinated note worth approximately $7.5 million.

The Santa Clara, Calif., chip maker, which already owns less than 1.5% of 3Dlabs, does not have to convert the note that is due in 2004. If it does, however, 3Dlabs said it would issue up to 1.5 million shares of common stock directly to Intel. Executives from both companies declined to comment on Intel's potential investment within 3Dlabs if the note is converted.

In return, 3Dlabs, headquartered in Hamilton, Bermuda, said it had licensed its entire patent portfolio to Intel for use in certain undisclosed markets, most likely PC chipsets. The terms of the seven-year patent license were not disclosed, although 3Dlabs' vice-president of finance and chief financial officer, Hildy Shandell, said the agreement was restricted to the company's patent portfolio, and not its technology.

This past spring, Intel pulled out of the market for discrete graphics chips while adding graphics functionality to its graphics chipsets.

"We're still trying to open new doors in terms of integrated [products], and it will be all part of that strategy," an Intel spokesman said. According to 3Dlabs, the deal prohibits Intel from using the technology to directly compete with its chips, used in professional graphics workstations.

Shandell said the deal was designed to expand its relationship with Intel, and help sustain the company's top-line, which has grown on average by 25% to 30% over the past few quarters.

"From that standpoint, we need to have more cash on hand," she said.