Intergraph CEO explains latest action against Intel

But in his fight against Intel, he's overmatched and underweight, analysts said. He's taking on the chip giant in a bloody scuffle that after nearly two years is more about perseverance than winning.

Intergraph yesterday filed a motion in the U.S. District Court of the Northern District of Alabama that maintains Intel failed to comply with an April 1998 injunction. That injunction temporarily put aside a dispute from the previous year, when Intel allegedly cut off access to its microprocessors and technology after Intergraph filed a lawsuit.

The motion states that Intel isn't living up to the injunction and continues to withhold vital technologies from Intergraph. Without this information, Intergraph is at a competitive disadvantage when it comes to developing systems and getting them to market on time, said analysts.

The chip giant has been accused of being a bully many times in recent years. Earlier this month, the Federal Trade Commission gave final approval to a consent order settling charges that Intel stifled innovation in the microchip industry.

The new court document that Intergraph filed outlines very specific instances of abuse and even presents email from Intel that allegedly supports the allegations.

"It's very clear to us they've intentionally tried to withhold data in every way that they can, either to hurt us or set an example for the industry," Meadlock said in an interview with CNET News.com.

In one instance, Intergraph alleges it lost an existing customer in Mexico because Intel refused to issue a letter of certification.

"They told us they didn't give out such letters, but we got a copy they gave out to competitive bidders," said Meadlock.

Intel dismisses yesterday's court action as frivolous.

"Intel believes that it is in full compliance with both the letter and the spirit of Judge Nelson's April 1998 order of the preliminary injunction. We have treated Intergraph the same as similarly situated customers, which is consistent with the judge's orders," said Chuck Mulloy, Intel spokesperson.

Intel would not comment on any specific allegations in the motion, but "we believe the judge will ultimately conclude we are in compliance," said Mulloy.

Intel's denials mean little to Meadlock, who fired 200 employees in a downsizing he blames on the bully tactics.

Hard times are still ahead. Intergraph also alleges Intel withheld chipsets vital to delivering faster Pentium III systems later in the year, putting it behind competitors.

Analysts said such information is vital to computer makers.

"I obviously don't know if it's true or not, but I can certainly attest to the fact you can't be a PC OEM [original equipment manufacturer] without that information," said Peter Glaskowsky, analyst with MicroDesign Resources.

"Intel with many of its OEM customers is incredibly generous with data and personnel to provide assistance," said Glaskowsky. "Effectively, if you have this information, it would be incredibly easy to outcompete anyone who doesn't."

Withholding information until the public launch of chipsets or processors, for example, would put Intergraph three to six months behind competitors, said analysts.

The case isn't scheduled to go to trial until June 12, 2000, but Intergraph is looking for one very specific point of immediate remedy.

"What Intergraph wants is the appointment of a special master to oversee the Intel-Intergraph relationship," said Lindy Lesperance, analyst with Technology Business Research. "There is a lot of merit to what Intergraph says is going on, and I wouldn't be surprised at the appointment of a special master."

In the meantime, Intergraph has scaled back its systems business, dropping its PC and low-end server lines and laying off 200 employees last week. The company will refocus on high-end graphics cards, workstations and servers for the prepress, publishing and digital media markets, areas it goes head-to-head against Apple Computer.

Intergraph posted a second quarter loss of $12.1 million, or $0.25 a share, on July 26. It blamed some of its problems on its troubles with Intel.

Intergraph argues that Intel's strong-arm tactics crippled its business, prevented recovery, and forced it to downsize its system operation.

Signs of weakness
Analysts contend that while problems with Intel greatly contributed to Intergraph's current state, the company showed signs of weakness nearly a year before the November 1997 suit.

Intergraph lost 71 cents a share the fourth quarter of 1996 on revenue of $294 million, and 55 cents on revenue of $252 million for the first quarter of 1997. During the fourth quarter of 1997, when Intergraph filed its lawsuit, it lost 43 cents a share on $300 million.

The Huntsville, Alabama, firm originally sued Intel in November 1997, alleging the company withheld technology to ensure Intergraph would relinquish chip patents.

In April 1998, U.S. District Judge Edwin Nelson issued an injunction compelling Intel to give technology to Intergraph as it would other PC manufacturers. But Intergraph had fallen behind at a crucial juncture and trailed competitors getting its first Pentium II Xeon servers to market, said analysts.