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Chip Wars
Consumers the only losers in the battle between Intel and Digital
As a teaser for this month's column, last month's column on new chip technology left you with this final word: "Chip making companies often go head to head on developing and marketing similar technologies, but at the same time forge innovative partnerships to develop new and different technologies. On the other hand, disputes over who created what and how it can be used lead to convoluted, but interesting agreements." The second sentence of that seemingly innocuous idea is a testament to the fact that, as a writer, I have become adept in the art of the understatement. Let me give you an illustrative example.
The industry gorilla in this story is Intel, the company most often associated with Microsoft, for better or worse. "Intel Inside" is one of the most ubiquitous labels of the modern age, as is "Windows," and in many ways Intel's fortunes are tied to Microsoft's. It's not surprising, then, that Intel has adopted some of the same business practices as its partner-in-crime, er, business associate. Last May, Digital Equipment Corporation filed a patent infringement suit against Intel for allegedly misappropriating (code word for stealing) some of Digital's designs for its line of Alpha chips. Just how Intel acquired the designs is one of those things, apparently, that we are not supposed to wonder about. We can assume, however, that they were not mislabeled and mistakenly mailed to Intel headquarters.
There must have been significant merit to Digital's suit -- it was announced early in October that Intel and Digital had come to a tentative agreement that would save Intel from a lengthy legal fight (which we may assume they would have lost -- otherwise, their deep pockets could have absorbed the costs easily) and would strengthen Digital's position as a manufacturer of personal computers. Curiously enough, though the settlement appeared to support Digital's contention that Intel misappropriated its designs, Intel comes out the big winner, and Digital comes out looking like Intel's partner.
The initial report of the settlement stated the terms thusly: Intel pays Digital about $650 million to purchase Digital's chip manufacturing plant in Massachusetts. Additionally, Intel pays Digital as much as $200 million for the rights to the Alpha chip technology, and promises to give Digital major discounts on its purchases of Intel processors. Why, the wondering and incredulous reader may ask, does Digital need to buy Intel processors when its own are sufficiently desirable that Intel went to some lengths (undoubtedly) to acquire the Alpha chip designs? That's a perfectly legitimate question, and here's the answer.
Late in October, it was reported that the settlement had been accomplished, for some $700 million plus royalties. The new twist, however, had Digital committing itself to developing computers based on the new Intel chip, apparently in direct competition with its own line of Alpha chips. With 35 computer vendors already committed to adopting the new Intel chip when it comes out next year, Digital must have seen the writing on the wall and decided to take the course of what can only be called capitulation. Computer industry analysts agree that Digital's commitment to Intel's chips spells the end for the Alpha chip.
So, to summarize our little morality play, Intel "misappropriates" Digital's design for its Alpha chip. Digital files suit. Intel, knowing that it hasn't a leg on which to stand, settles in its own fashion: it already has the designs, it has the money to shut up Digital, and it has the muscle to bring dozens of computer vendors into line, including Digital, which neatly and effectively quashes the threatening competition. Who are the losers? Competition and you.