According to one reseller, it is not Digital that should be worried about its exchange of law-suits with Intel, but all the other PC vendors.
?If Digital?s case proves to be valid, which I doubt,? he said, ?then they?ve got to get rid of the Pentium, the Pentium Pro and the Pentium II. Firms like Compaq should be worried. If the patent claim is correct, Digital is the safest buy.?
If Digital?s claims that Intel has infringed 10 of its patents are upheld, then it could have serious repercussions for the PC vendors. If they are not, and Intel decides to take umbrage at Digital for bringing the case, it could deal a crushing blow to Digital?s PC business.
But the most probable result is a draw ? an out-of-court settlement or some kind of agreement between Digital and Intel is one likely outcome. There is too much at stake for both companies for the result to go any other way. And it is not entirely clear why Digital filed the suits in the first place.
If, however, the patents are upheld in the US courts and the two firms don?t reach an out-of-court settlement, companies like Compaq might be forced to pay royalties to Digital. But if Digital has a case, says Mark Walker, PC product manager at Ideal Hardware, it?s unlikely that a deal will not be struck and most users and resellers know this already.
?Most people understand that it will be amicably resolved without going all the way. The prospect of Digital not being supplied with chips is daunting and horrendous, but no one believes it will get that far.?
It is easy to see how the dispute might unsettle the market. Any question that Digital may not have access to Intel products within a few months is worrying. According to one report, Intel is threatening to withdraw supplies of its chips at the end of September, in spite of Digital?s claims that chip supplies are secure until 30 June 1999.
Intel has, allegedly, already cut off Digital?s access to further information about new processors. Digital won?t return the technical material Intel is demanding with its counter-suit because, Digital says, the data is necessary for the company to maintain a competitive Intel-based offering.
Digital has described Intel?s counter-suit, for the return of technical material on the next version of the Pentium II, as ?a thinly veiled attempt to cause concern among Digital customers?. Simon Jacobsen,UK commercial director at Digital, added: ?I can?t imagine Intel not supplying Digital. There is always a risk, certainly in North America, of coming under anti-competition laws.?
The Digital action may be more about competition than anything else. One industry observer, recently briefed by Intel insiders, said one theory is that the suit is a pre-emptive strike against the Intel/Hewlett Packard alliance formed to produce the Merced 64bit chip.
Intel and HP plan to bring the Intel and the PA Risc architectures together and give them a common instruction set. Potentially, this is a threat to Digital?s Alpha processor which, at present, is the only 64bit processor capable of running Windows NT.
Another reason for the lawsuit suggested by parties close to Digital is manufacturing capability. To produce Alpha processors in quantity, Digital will require a fabrication plant capable of manufacturing wafers to much higher tolerances than the current generation of factories. To set one up would cost between $2 and $3 billion, and building one would be a high-risk strategy for a firm with total assets of under $10 billion currently on the balance sheet.
But according to one Digital reseller, the most likely reason for the attack lies in the looming threat of the Intel platform.
He said: ?Processor speeds are increasing by 44 per cent every six months ? doubling every year. Storage is only growing by eight per cent. What value is there is having an Alpha screaming away when you are waiting for the disk? You might as well have an Intel chip in there, and that?s the way it?s going. Alpha, Power PC, Sparc, they are all going to become niche products.
?If you ask me how many of my customers are moving their applications on to Intel, at a guess, I?d say all of them.?
If Digital can claim part of Intel?s stake in the processor business then it is in a very a strong position and other PC vendors will be at a disadvantage. Other observers have pointed out that Digital would not have gone legal had it not felt it had a strong case.
However, in spite of a 25-year business relationship with Digital and in spite of Digital spending $250 million a year with the chip giant, Intel seems to be in no mood to back down. It will probably take months, or even years, for the suits to move through the courts. In the meantime, Jacobsen does not think resellers should worry.
?I was with a bunch of resellers yesterday and there was interest in it, but no major concern. These things can go on for years and we try to view it on a commercial basis. It will all take place between lawyers and it?s business as usual for us.?
Digital, it seems, was aware that it may be risking a long and prolonged legal battle with Intel when it issued its suits. Gen- eral counsel for the company, Thomas Sielkman, said: ?We expected the counter-suit. They are asking us to return to them materials which they shared with Digital and other systems vendors that design Intel processors into their products. We also find it curious that they are asking for damages from a firm that buys product from them.?
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