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Settlement good for Digital, bad for Alpha

Digital's Alpha technology, a high-end RISC processor platform that forms the basis of Digital's enterprise computing strategy, will likely begin to fade over time.

In the proposed settlement between Digital and Intel, the loser appears to be Alpha.

Digital's Alpha technology, a high-end RISC processor platform that forms of the basis of Digital's enterprise computing strategy, will likely begin to fade over time, said observers, because the agreement calls for Digital to begin to make servers and workstations based on Intel's IA-64 architecture as soon as 1999. Alpha will remain Digital's main high-end processor for the next few years, said most, but the chip will begin to move to the background as Intel's architecture becomes more established.

"Over time, the Alpha will become less and less important?It looks like Sun is now the last one standing," said Michael Slater, principal at MicroDesign Resources. "Alpha customers have a reason to be concerned."

The settlement, however, could prove to be a springboard for Digital's StrongARM embedded processors. Under terms of the agreement, Intel will take over development of the low-powered processors, used in personal assistants and other small, mobile computing devices. Intel has hinted several times that it plans to get into this market, but the lower profits these type of chips bring has kept the company from dedicating much effort to it, a number of analysts have said.

Although Intel's commitment to development in this area remains clear, the StrongARM acquisition eases the research and development effort required to get into the market.

"That was the most surprising thing about the settlement," said Slater. "It does fit well into Intel's portfolio. Intel's embedded processors have not been competitive."

While both Digital and Intel are pledging support for Alpha, the terms of the deal and how these will play out in the marketplace prompt many to see a decline for Alpha.

Intel is an investor in CNET the Computer Network.

Under the terms of the settlement covering a patent infringement suit Digital filed against Intel in May, Digital will transfer its chipmaking plants to Intel. Intel will continue to fabricate Alpha processors in those plants for an undisclosed time period. At the same time, Digital said it would begin to market servers based on the IA-64 architecture, which is predicated on a next-generation, 64-bit computing technology. Merced, the first generation of IA-64 chips, is due in 1999. The two companies will also engage in a ten-year cross licensing agreement.

Digital will also receive cash payments, discounts, and soft dollars totaling close to a $1.6 billion payoff, estimate various sources.

The agreement to manufacture Merced machines, however, means that Digital will have to support two platforms. Over time, Merced systems will likely be more appealing, as they will enjoy wider industry support.

"Digital will fold their Alpha in to IA-64 sooner than later," said Ashok Kumar, an analyst at Loewenbaum & Co. The expense involved in developing the platform, which does not enjoy wide support, will become too great for Digital. Approximately 450 to 500 engineers work on Alpha, he said.

"I see Alpha as being dead in a few years," commented Richard Belgard, a consultant with MicroDesign Resources.

Another analyst, who requested anonymity, noted that Digital has a road map for the Alpha chip that only goes to around 2001 with the 21364 processor. "Given the choice between IA-64 and a long-term road map, and Alpha, customers are going to turn to IA-64," the analyst said.

Digital's Howard Elias, vice president of NT business systems, refuted the notion that Digital's commitment to Alpha will fade. On the contrary, the deal works to the platform's advantage. By transferring the fabrication plant to Intel, Digital frees up its own capital so that it can be put toward processor development. The two companies will also work to ensure that existing and future Alpha applications will be able to run on both platforms.

Elias would not state how long Intel has agreed to act as a foundry for Alpha processors, but said that the agreement covers several generations of the technology. Digital, he added, will come out with a full line of Merced-based systems upon release of the chip.

Still, even Elias said that IA-64 machines will likely constitute the volume platform in the marketplace. Alpha will sell, but mostly into the high-performance vertical markets where it currently sells now. "IA-64 will be a dominant platform in the marketplace."

The settlement further removes clouds hanging over both companies as a result of the suit, said Dean McCarron, president of Mercury Research. "The motivation for Intel had to be that there's something in the Alpha technology that is vastly superior to Intel's or that Digital's technology is protected by very strong patents," he said.

The settlement also means that Digital no longer has to fight negative perceptions about its supply of Intel processors for servers.

Digital filed its suit in May, accusing Intel of infringing certain Alpha patents. Since then, the two companies have had a tumultuous relationship. Right before the suit, Digital struck an alliance with Advanced Micro Devices to supply Digital with microprocessors. Digital said its AMD deal will continue.

The transfer of StrongARM could mark the beginning of an effort to get into the device market by Intel. While Intel has historically only shown tepid interest in making low cost processors for this market, sales of small computing devices are growing.

"There is an opportunity at the low end that everybody is moving into," said Belgard.

Kumar, however, said that it is just as likely that Intel eventually terminates StrongARM. "StrongARM has had a few designs wins in the CE space, but no one is making any money at it."

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