Intel Corp (INTC) and NVIDIA Corp (NVDA) have at last come to a settlement regarding the legal disputes between them. The two companies have released each other from all previous claims and agreed to cross license some technologies, the whole thing costing Intel $1.5 billion.
Intel had been the first to sue, claiming that NVIDIA needed a fresh license to continue manufacturing some of its products that were based on the Intel x-86 architecture. NVIDIA promptly countersued, bringing in many Intel strong-arming tactics, which alerted the anti-competitive watchdogs.
Considering the way things were developing and the ease with which Advanced Micro Devices (AMD) was able to eke out $1.25 billion from Intel, we expected Intel to come out with an attractive offer. We remained positive about the company overall, since we did not really think that even a handsome amount would push its nose out of joint (Intel generated $3.5 billion of cash in the last reported quarter). On the other hand, we expected that any settlement would be highly beneficial for NVIDIA.
What we had not bargained for however was Intel managing to keep the deal overall favorable to itself and this is one of the things that pushed up the figure in our opinion. As things stand now, Intel gets to use NVIDIA graphics technology to develop its integrated graphics chips. NVIDIA will get to license some of Intel’s technologies, with the exception of the x-86 architecture.
This is what makes the agreement a win-win for the two parties. On the one hand, Intel gets to keep its supremacy in x-86. A more important implication is that NVIDIA is defocusing the high performance computing segment, to which it has been targeting its general purpose graphics processing units (GPGPUs).
This could be a temporary breather for Intel, since graphics processing units enable faster information processing and the only reason they have not been widely adopted is that there are some challenges to implementation (“very high power consumption, programmer difficulties, vendor lock-in and backward compatibility” – Jon Stokes at Technica).
NVIDIA gains on a number of fronts – first, the company gets a promise of $1.5 billion in six annual installments commencing this month; second, it may continue to use important Intel technology in its products; third, even if it decides to step away from supercomputing, it will pick up a share when Intel uses its technology.
Fourth, NVIDIA has already stated that it will be devoting development efforts on designs from ARM Holdings (ARMH) that are more commonly found in cell phones and mobile computing platforms. Since NVIDIA chips enable superior graphics required for gaming devices, development of technologies in the area makes more sense for the company.
Both Intel and NVIDIA carry Zacks #3 Rank, implying a short-term Hold recommendation.
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