Graphics vendor S3 has become the latest company to land a
technology licensing deal with Intel, a trend that may lead to the
emergence of low-cost parts for set-top boxes, information appliances, and
cheap computers based on Intel ideas.
The agreement--which follows a technology swap between Via Technologies and Intel, and is expected to be followed by
deals between the chip giant, SiS, Acer Laboratories, and others--will likely
have far reaching implications for the industry.
In the future, Intel-based parts won't just come from Intel. Instead, they
will emerge from a series of smaller competitors like S3, which plans to
produce new 3D chips, chipsets with 3D capabilities for inexpensive
computers, and even processors for handheld computers and the like that
depend upon Intel intellectual property.
Not only will this mean cheaper
parts, it will lead potentially to the further expansion of Intel's chip
technology in the low-end computer market and even non-PC markets.
And the fact that Intel plans to license its technology more freely may
weaken the case brought by the Federal Trade
Commission. One of the big issues for the trial, which starts February
23, is whether Intel limits access to its intellectual property to browbeat
competitors and customers.
In the agreement announced today, S3 and
Intel have entered into a 10-year technology cross license pact, which
allows S3 to use certain semiconductor patents and intellectual property
rights. S3 has the rights to incorporate into products the "P6" bus, which
is used in conjunction with Intel microprocessors and other technology, said Chuck Mulloy, an Intel spokesman. (Intel is an investor in CNET: The Computer Network, publisher of News.com.)
Intel also agreed to purchase warrants, or options, which gives the company
the right to buy shares of S3 in the future. Financial terms were not
S3's product plans
S3 said it plans to use the patents to incorporate additional functionality
into its current graphics processor line, as well as come out with a new
series of chips for "set-top boxes, WinCE machines, consumer appliances,
industrial point-of-sale systems, and automotive GPS systems," according to
a statement from S3.
The first products to emerge from the deal will be 3D graphics chips that
support the next version of the Accelerated Graphics Port (AGP), a PC
architecture innovation from Intel that speeds up graphics processing.
These will emerge in the first half of 1999, said Rich Bergman, vice
president of marketing at S3. "Integrated" chipsets, which will combine 3D
graphics functions as well as some of the input-output functions handled by
standard chipsets, will also emerge.
Processors for set-top boxes and handhelds won't start appearing until the
next century, he added. How and where these processors emerge will likely
become an interesting issue. Enhancing Mulloy's statements, Bergman said
that S3 has access to all of Intel's patents, including patents to the
Pentium II. S3, however, is limited in how the company can incorporate
these patents into actual products.
In any event, S3 has "no desire to develop microprocessors that will
compete head to head against Intel," Bergman said. But, because Intel is
not as yet entrenched in the handheld or set-top market, the deal could see
the emergence of S3 system-on-a-chip devices. These chips could serve as
microprocessors or merely graphics chips. S3 is being fairly cryptic on the
subject, but executives at the company have said that S3's intellectual
property portofolio creates "opportunities."
Intel avoids Merced fight
Intel, for its part, will gain access to S3's patents. While it is unclear
whether Intel will incorporate any S3 technology into its products, the
deal may quell a potential legal problem for Intel. Observers have said
that the patents S3 acquired from Exponential earlier this year gave S3 a
weighty claim for patent infringement against Intel.
The Exponential patents allegedly superseded Intel's patents on Merced, its future server chip, according to Richard Belgard, a patent analyst, and gave S3 potential
rights against Intel. S3 launched patent infringement suits against two
other companies earlier this year.
"The Exponential patents look like the motivator for Intel," said Belgard.
Intel, which historically hasn't jumped into many technology agreements,
appears to be changing its tune. Earlier this month, the company signed a
deal with chipset maker Via Technologies, which will allow the company to
make "P6" chipsets. SiS, another chipset vendor, said it is on the verge of
inking a deal with the chip giant. Further deals are expected from other
vendors, said Dean McCarron, an analyst at Mercury Research.
Motives for deal abound
Why is Intel taking these steps? One reason is financial, according to
Nathan Brookwood, a chip consultant with Insight 64. Intel charges fairly
hefty fees for its licenses. Sources earlier in the year said Intel was
asking close to $5 per chipset. The final terms in the Via agreement are
lower, sources have said, but Intel will still make money on the deal.
There may also be the legal angle. "With licensing deals, the monopoly
angle--at least on the chipset side--would go away," said McCarron.
Mulloy said that the timing of the Via deal and the S3 deal was
coincidental and does not have bearing on other matters.
S3 for its part primarily sought the deal as a way to get back into the
graphics market, said Bergman. The company suffered mightily when it failed
to come out with a cutting-edge chip with the initial release of AGP.
Today's deal will help ensure that S3 doesn't miss another design cycle. In
addition, as integrated chipsets become more popular, S3 will not have to
worry about getting access to bus technology. Other competitors who have
not signed deals with Intel, however, might.