Under the deal, General Instrument will buy Toronto-based ATI's Rage graphics chips for use in its DCT-5000+ advanced interactive digital set-tops, a device that will include many features similar to a personal computer.
Financial terms of the deal were not disclosed.
The deal is another win for ATI. Last week, Mercury Research stated in a report that ATI had taken over the lead as the supplier of graphics chips to the computer industry in the second quarter. ATI's market share in overall desktop graphics chips has grown to 27 percent, a lead that mushrooms to 35 percent in 3D graphics shipments, according to the report. ATI is also quickly gaining strength in the 3D graphics chip market for notebook PCs, with a 31 percent share here, according to the report.
Some analysts have also praised ATI's next chip, the Rage128, due out later this year.
Earlier this year, General Instrument chose a MIPS processor from Quantum Effect Design's for its set-top device.
Major chipmakers Intel and Cyrix lost out in the decision, which is important because General Instrument supplies set-top boxes to cable TV giant TCI and last year won an agreement to supply 12 large cable companies with 15 million new devices. The potential market for set-tops with computer-like features dwarfs the PC market, perhaps numbering in the hundreds of millions, and is a critical area of chip growth.
Due early next year, the new device will offer such features as a built-in hard drive and advanced processing for 3D graphics. These and other capabilities will push TV set-top boxes into computer territory and could ultimately be the vehicle for bringing the PC into the living room.
Reuters contributed to this report.