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3DLabs scoops up Intergraph's graphics division

The company buys the graphics division of Intergraph, the latest sign of shrinkage in the overcrowded graphics market.

3DLabs today announced that it would buy the graphics division of Intergraph, the latest sign of shrinkage in the overcrowded graphics market.

3DLabs, which specializes in graphics chips for high-end PCs and workstations, is buying the Intense3D operations of Huntsville, Ala.-based Intergraph. Although Intergraph has mostly been known for workstations, its Intense 3D division has enjoyed considerable success in selling graphics chips and subsystems for workstations to competitors such as Compaq and Dell.

The deal marks the latest in a series of recent acquisitions in the packed graphics market. Simply put, there are two many graphics chip designers chasing too few opportunities in nearly every segment of a market where prices and margins continue to decline.

In the past few weeks, Artx and Gigapixel were sold to ATI Technologies and 3DFx, respectively. The two companies, both founded by Silicon Graphics alumni, specialize in graphics technology for game playing systems.

PC graphics specialist S3, meanwhile, revealed recently that it wants to sell its graphics division. Taiwan's Via Technologies, which collaborates with S3 on integrated graphics chips, is expected to be the buyer.

While it remains hard to predict whether further consolidation will occur, the 3DLabs acquisition will likely help customers by allowing the company to better concentrate its resources, said Peter Glaskowsky, graphics analyst at MicroDesign Resources.

Typically, more competitors means lower prices and more rapid technological advancement. In a saturated market, however, research and development dollars get spread too thin.

"There will be some benefit to consumers from less competition," Glaskowsky said. "We had 10 different people in competition for the same market, but it was just too many."

With the Intense3D division under its wing, 3DLabs will strengthen its position as one of the leaders in the market for graphics chips for workstations and professional computers. ATI and Nvidia largely lead the market in graphics chips for PCs.

Under the agreement, 3DLabs will issue approximately 3.69 million shares of its stock for the Intense3D operations, roughly worth $30 million, according to an Intergraph spokeswoman.

3DLabs may also pay Intergraph an additional $25 million, the spokeswoman added. The additional payment is contingent upon hitting sales goals for the coming year.

The sale will mark another step in Intergraph's planned transformation into a software and services company. Late last year, the company said it would begin to de-emphasize workstations and servers.