Intel, Digital settle suit

Intel (INTC) and Digital Equipment (DEC) today announced a settlement in a patent litigation lawsuit filed by Digital in May, an agreement likely to have wide impact on the microprocessor industry.

The broad-based agreement includes the sale of Digital's semiconductor manufacturing operations to Intel for about $700 million; the cross-licensing of patents; supply of Intel and Alpha microprocessors; and development of future systems based on Intel's 64-bit microprocessors.

Craig Barrett, Intel COO, lists settlement gains

Detailed terms of the agreement were not disclosed.

"It's a win-win relationship between the two companies," said Craig Barrett, Intel's chief operating officer.

Barrett noted that the agreement will allow Intel to concentrate on its core business, give the chip maker an up-and-running manufacturing plant, provide additional revenue as Intel acts as a foundry for Digital's chips, and erase the litigation between the two companies.

Digital's highly publicized lawsuit had charged Intel with stealing key elements of its patented technology for the design of Pentium processors. Last week, analysts said they believed that an out-of-court settlement was imminent, as a hearing on Intel's related case against Digital in San Jose, California, last week was postponed.

Intel does not expect to take a charge for the acquisition but will add the expense to its capital spending budget, Barrett said. Robert Palmer, Digital's chairman and chief executive, said it has not yet been determined whether Digital will take any charges.

Palmer said the agreement ensures that the company's

Robert Palmer, Digital chairman, on the settlement

two-decade-plus relationship with Intel will continue into the future. In addition to yielding $700 million, the deal will also save money in the company's withdrawal from the chip-manufacturing business.

In a joint statement this morning, the two companies requested a stay of all lawsuits until the agreement receives the required U.S. government approval. The companies hope to get that approval in three to six months.

Among the key components of the agreement:

• The two companies will enter into a ten-year cross-licensing patent agreement.

• Intel will purchase Digital's semiconductor operations, including facilities in Hudson, Massachusetts, as well as development operations in Jerusalem and Austin, Texas, for about $700 million. Barrett said the decision to delay opening a plant in Texas was based in part on its planned acquisition of Digital's manufacturing operations there.

• Digital will retain its Alpha and Alpha-related semiconductor design teams to continue to develop future generations.

• Intel will offer employment to other Digital semiconductor employees and will serve as a foundry for Digital for multiple generations of Alpha microprocessors.

• Intel will provide Intel products and technical support to Digital consistent with practices for other major Intel original equipment manufacturers.

• As previously reported by CNET's NEWS.COM, Digital will develop systems based on Intel's IA-64 architecture, the foundation of Intel's next-generation Merced chip. With technical assistance from Intel, Digital will port its Digital Unix operating system to Intel's IA-64.

• Intel will obtain rights to manufacture and sell other non-Alpha Digital semiconductor products.

(Intel is an investor in CNET: The Computer Network.)

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