Last week, Opti Technologies announced a patent infringement lawsuit against a bevy of chip companies: Advanced Micro Devices, Atmel, Broadcom, Renesas Technology, Silicon Storage Technology, SMSC, STMicroelectronics and Via Technologies. At issue are two patents for "Compact ISA-Bus" technology.
Opti had recently sued Apple and AMD over three patents for "Predictive Snooping" technology used in some computer chips. And, in August of last year, Opti settled with Nvidia for $11 million plus up to $9 million more if nVidia continues to use Opti's technology in its products. The nVidia action included all five of the above-mentioned patents.
Silicon Valley faithful will remember Opti as a once-respected chip company that fell on hard times. Is the company's recent patent litigation rampage the death-throws of a desperate company or a promising new business model? Let's go through it.
At present, Opti has but one full-time employee, CEO Bernard Marren. And, according to the company's 1995 proxy statement, Marren gets a cut of everything he brings in to shareholders on a sliding scale that starts at 5 percent and ramps down to 1 percent. Mike Mazzoni, the company's part-time CFO, appears to have the same deal.
Do the math; it's not bad work if you can get it.
I had lunch with Marren a few weeks ago. The 71-year-old industry veteran seemed excited about Opti's prospects and he may have reason to be. Marren isn't new to executive management. He's a former founder and president of electronic distributor Western Micro Technology and the Semiconductor Industry Association (SIA). He sits on a number of boards, including Microtune, Infocus and Unipixel. Marren knows his way around the negotiating table.
For better or worse, patent infringement litigation is business as usual in the chip industry. If not for broad cross-license agreements, chip companies might spend more time suing each other than developing products. Nevertheless, some companies have carved out significant niches by developing and licensing technology. ARM, Qualcomm, Rambus, Tessera, even IBM and Texas Instruments, make a solid business of it. But, for the most part, these companies develop technology with that business model in mind. Believe me, they prefer to negotiate than to litigate.
Opti's situation is a bit different. The technology in question was developed long ago and for use in its own chips, chips it no longer sells. And Opti has no research and development whatsoever. What happens when it's finished milking these five patents and giving all the proceeds back to shareholders in the form of periodic dividends is anybody's guess. That said, Opti's play is real income for Bernie and Mike, real returns for its shareholders, and a real pain in the you-know-what for the companies on the other end of its complaints.
Opti's rise and fall (and rise?)
Opti was founded on a shoe-string by four employees of Chips & Technologies in 1989. The high-flying company hit $100 million in revenue in just three years and went public in 1993. Opti placed three executives on the San Jose Mercury News' list of Silicon Valley's highest paid executives, with then-CEO Kenny Liu topping the list. But by the time the article was published, Kenny was already gone.
Revenues peaked in 1995 and it was all downhill from there. Opti's steep decline was the result of internal and external forces. Executive infighting and Intel's aggressive interest in the market for core-logic chipsets--companion chips to PC microprocessors--combined to spell doom for the company. Enter Bernie Marren.
A board director since 1996, Marren became CEO in 1998. By 2000, product revenues had all but disappeared. Then Bernie closed a patent licensing deal with Intel for $13.5 million. For the next five years, the company essentially lived off cash reserves. Fiscal 2006 revenues were actually zero and the company had but $13 million in cash when it settled with Nvidia. We'll see where it goes from there.
Full disclosure: I am a former executive officer of Tessera and Rambus. Tessera has been a client of my consulting business. I consulted for Nvidia's outside legal team on the Opti case. I have equity holdings in several of the companies named herein, but not Opti. I was an Opti employee from 1993 to 1995, before Marren joined the board.