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Intergraph spins off graphics unit

Workstation vendor Intergraph will announce on Monday that it is spinning off its graphics division into a separate company, a move calculated to win back customers.

Workstation vendor Intergraph will announce on Monday that it is spinning off its graphics division into a separate company called Intense3D, a move calculated to win back workstation customers who found that using Integraph's chips presented a competitive conflict.

So far, the strategy seems to be working. Dell will announce that it will offer Intergraph's graphics products in its workstations again, said sources. IBM, meanwhile, has also said to have patched up differences with the Huntsville, Alabama-based manufacturer.

Compaq, which does not currently incorporate Intergraph products in its workstations, will also pledge support for the venture in what could be a prelude to a deal between the two.

The spin-off comes as a result of a conflict that came to a head last year, according to sources. Intergraph both manufacturers workstations under its own name and also sells graphics subsystems to other workstation vendors. Because Intergraph's graphics systems generally received strong reviews, and because it was cheaper than making their own, workstation makers bought Intergraph graphics systems and put them into their own workstations.

At one point, the company had roughly 30 percent of the high-end graphics market for 3D workstations, according to Jon Peddie and Associates, a Tiburon, California-based consulting group.

Last fall, however, the relationships began to break down. Intergraph's products were becoming too expensive. Workstation customers also felt that Intergraph was trying to undercut them in price, sources said. In November, Dell dropped Intergraph and began to build its workstations around graphics solutions from 3DLabs and other manufacturers. IBM, another customer, was said to be in the process of shopping for other vendors.

Intergraph, moreover, was not exactly dealing from a position of strength. Earlier, its workstation business suffered setbacks when it had to delay the release of workstations because it could not get adequate supplies of microprocessors from Intel. Intergraph alleged that Intel deliberately cut off chip supplies in retaliation and filed a lawsuit against the company. Regardless of the merits of the case, Intergraph has said that delaying the workstations hurt their market share.

The new organization should help avoid conflicts.

"By kicking it into its own [company] it gives it to a guy who is fiscally responsible for licensing it," said Peter Glaskowsky, graphics analyst for MicroDesign Resources.

"Operating as a separate entity, Intense3D is able to focus its sales, marketing, and support to meet the needs of an expanding list of OEM partners. This allows us to leverage our already-sizable market position into an even stronger leadership role," said Jerry Peterson, president-to-be at Intense3D.

The new company will be officially formed in the first half of 1999 and start with approximately 100 employees.