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Intergraph: Intel deal confirms threat

Intel says that that its investment in graphics chip vendor E&S is about enhancing workstation performance, but Intergraph fears otherwise.

Intel says that that its investment in graphics chip vendor Evans & Sutherland is about enhancing the performance of workstations, but Intergraph claims the move confirms all of its fears.

Intergraph, which makes both Intel-based workstations and also high-end graphics See roundup:
Intel's strategy in 3D subsystems for workstation vendors such as Dell, today said that Intel's $24 million investment in Salt Lake City-based Evans & Sutherland (E&S) bolsters the argument that Intel is using its weight in microprocessors to muscle into the graphics arena. The issue is central both to a lawsuit brought by Intergraph and an antitrust suit filed by Federal Trade Commission.

"Obviously, this further confirms key points Intergraph is making in its lawsuit against Intel, that Intel is a competitor of Intergraph's and that Intel is actively expanding deeper into graphics," said an Intergraph spokesman. "We are sure that the Federal Trade Commission will find this interesting."

Most observers canvassed by CNET's NEWS.COM do not see the investment as a direct assault on Intergraph, but the circumstances give Intergraph room to argue. This is the fourth investment in graphics companies that Intel has made in the past few years. E&S is also one of Intergraph's prime competitors in the graphics subsystem arena.

Intel is an investor in CNET: The Computer Network.

"They [E&S] are definitely an up-and-comer," said Dan Dolan, workstation analyst at Dataquest. "They have some of the better chips out there," he continued, adding that the company has recently acquired smaller competitors.

"Evans & Sutherland has a history for being one of the strong players in the marketplace," said Dave Mack, president of Technology Business Research.

Intergraph and E&S in fact battled it out for attention at Siggraph this week. E&S announced that it would work with Compaq to develop graphics subsystems for that company's high-end workstation PCs, based around both Intel and Alpha processors. Intergraph, meanwhile, announced the next generation of its graphics subsystem.

For their part, Intel and E&S stated that the investment is being made to enhance the graphics capability of Intel-based workstations. Although Intel workstations currently account for 70 percent of workstation sales, they produce less than 50 percent of the revenue, said Pat Gelsinger, vice president and general manager of the Business Systems Division at Intel. To get into the higher echelons of the market, better graphics subsystems are needed.

"Our objective is to expand the Intel architecture, period," he said.

Mack agreed, saying Intel's stake in E&S only comes to 8.2 percent, hardly a controlling interest. "This is being done to facilitate higher-end systems," he said. "They have been making investments in a wide range of companies."

Still, Intergraph and sources close to the FTC have said that Intel's interest presents a concern. Intergraph has alleged in its suit that Intel pulled a nondisclosure agreement with Intergraph in an attempt to get access to Intergraph's graphics technology. The FTC has raised Intel's handling of Intergraph as a major issue in the agency's case.

In addition, the graphics market has been a focal point of an ongoing investigation into Intel's business practices by the FTC. Graphics vendors reported last year that the agency contacted them with regard to its antitrust investigation. Former FTC investigators have also said that the FTC is looking into the competitive effects of a product code-named Whitney, a combination chipset-graphics chip for low-end workstations that Intel plans to bring out next year.

Nonetheless, the agency approved Intel's acquisition of Chips & Technologies earlier this year.