An ab fab deal that's chip at Alpha price

It was a bizarre turn of events last week that led to a convenientl, but will this spell the end for Alpha? settlement of the long-running court battle between Digital and Intel.

At the beginning of the month it was rumoured that Intel would buy Digital's Alpha chip manufacturing plant. One week later, Intel took the unusual step of leaking an internal memo disputing this, only to conclude a deal last week that could lead to the end of the Alpha chip and a further anti-trust investigation of Intel.

As exclusively revealed in PC Dealer (29 October), Intel has bought Digital's Alpha chip manufacturing facilities, and the companies have agreed to collaborate on Alpha and Merced in an agreement that will settle their legal dispute if approved by US authorities. It also hands Intel the rights to make and sell the StrongARM processor for small computers and electronic devices.

The complicated deal means Digital will keep developing Alpha but pass manufacturing to Intel for an undisclosed time. Digital will develop systems using Intel's IA-64 architecture chips and Intel will be able to make and sell Digital's non-Alpha chips including StrongARM. Digital will also port its Unix OS to IA-64 and the companies will cross-license patents for 10 years.

The agreement appears to have won Intel a settlement, as well as temporary use of a fabrication plant, a useful low-end chip in StrongARM and another Merced-based hardware partner. Digital gets cash, lower costs, guaranteed discounts, rights to Merced-based hardware and partnership with Intel.

But this deal spells doom for Alpha and isolates Sun as the only significant alternative to Intel or Intel partners for systems processors. Observers said the $700 million Intel will pay Digital for its Massachusetts chip fab is a cheap price. Financial details of the rest of the deal were not disclosed, but sources predicted Digital will gain over $2 billion in the long term.

Alpha was one of Pentium's few competitors in the server and workstation market, and the Federal Trade Commission may decide the deal gives Intel too dominant a position, particularly in manufacturing. Sun's Sparc architecture now seems to be the only true rival to Intel's architecture in high-end systems, as Digital and Hewlett Packard have agreements with Intel.

Analysts predicted the demise of the Alpha platform after Digital signed to make systems based on Merced, the first-generation chip using Intel and HP's IA-64 architecture. They said Digital will struggle to make both Alpha and Merced-based systems as the costs will be too high.

Digital appears to have joined the growing list of Merced supporters, but has kept some commitment to its Alpha platform for existing customers - so it has an alternative in case of major problems with Intel and HP's development of Merced.

Digital CEO Bob Palmer tried to reaffirm Digital's support for Alpha, and said the market will decide how successful Merced becomes. But there has been a veil of silence about the deal from Alpha OEMs Samsung and Mitsubishi, which only signed to manufacture the chip this year and must be nervous that Intel now has access to the Alpha fab.

Digital pointed out that its financial gain means it can spend more on Alpha development and ensure applications will run on both Merced and Alpha. But Digital has only committed itself to developing Alpha until 2001, with its 21364 iteration.

Privately, Digital sources admitted IA-64 is likely to dominate the volume PC and server market, but publicly they claim Alpha will sell as a proven, stable 64-bit platform in vertical markets.

The deal will solve some problems for Digital - it will no longer have to justify why it uses Intel chips instead of Alpha in low-end servers, and Intel no longer has to defend Pentium when accused of technical inferiority to Alpha or Sparc.

HP competes with Digital in systems, which may have put pressure on Intel to try to keep Digital out of Merced. The wording of the statement from Craig Barrett, Intel president and COO, showed Intel made the deal because it had to, not because it wanted to. 'We are pleased to get alignment with one of the world's major computer firms on IA-64 microprocessors and to let the market judge our work,' he said.

However, HP will still gain licensing money from Digital's Merced-based sales.

Palmer insisted that Digital's biggest gain from the deal is financial because it will save money on manufacturing and development. He added that the PC manufacturer also gains because Intel has the resources to get Alpha chips to market faster and more cheaply than Digital.