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SiS to license Intel chip design

SiS has signed a licensing deal with Intel that should boost competition in the Pentium II chip market.

Silicon Integrated Systems has landed a licensing deal with Intel that will further open up the PC component market as well as potentially weaken the case being prepared by the Federal Trade Commission.

The deal itself is fairly straightforward, but could have fairly far-reaching implications, as previously reported.

Under the terms of the agreement, Taiwan-based SiS obtains the right to make chipsets that are compatible with the Intel "P6" architecture, a core element of Celeron, Pentium II and Pentium III-based PCs. The chipset is one of the crucial components of a PC and server computers, as the communications conduit for data between the processor and other PC components.

Until recently, Intel held a monopoly in the P6 chipset market. In December, however, the company signed a P6 licensing agreement with Via Technologies and was negotiating with SiS. Both companies pay an undisclosed royalty to Intel. Sources, however, estimate that the royalty exceeds $2 on each chipset, a product which ordinarily sells in the $20 to $30 range.

With three companies manufacturing chipsets, the cost of making P6-based computers could go down, say analysts, because there will be a wider variety of components. In turn, this will increase pressure on AMD. AMD-based computers use a different, and less expensive, system bus architecture, which has been one of the company's selling points. Intel will still likely hold a financial edge on its competitors. Both Via and SiS, after all, will be paying royalties. Still, these deals could expand the market at the expense of the other processor vendors.

In 1998, the total market for processors is estimated to be about 117 million units, with about 50 percent of this Pentium II, according to Mercury Research. Since each of these processors requires a chipset, this is not an inconsequential revenue stream . In 1997, the firm made roughly $1.7 billion dollars making chipsets, said Dean McCarron, a Mercury analyst.

In addition, the deal could take some heat off of Intel in its legal dispute with the FTC. The FTC has alleged that the historically tight control Intel maintains over its intellectual property gives the company monopoly power. That picture begins to erode with licensing deals. The company also cut a deal with S3.

"With licensing deals, the monopoly angle-at least on the chipset side--would go away," said McCarron.

SiS did not announce any future products, but indicated it would make chipsets for the low end of the PC market. "This agreement resolves the intellectual property concerns between the two companies with respect to the licensed chipset," said Shing Wong, senior vice president form SiS. "By signing this agreement, we hope to fuel the momentum for further growth in the sub-$1,000 PC market.

Financial terms of the deal were not disclosed.