The lawsuit Intel filed against nVidia earlier this week is, on the surface, about the scope of a chipset license. nVidia maintains its 2004 license with Intel extends to the chip giant’s most recent platform, Nehalem; Intel says otherwise.
Underneath though, it looks like the first real shot in an escalating war between two companies that seemed destined to be at each other’s throats. Intel (NASDAQ: INTC) picked this fight, to an extent, by encroaching into nVidia’s turf with a push into the graphics business with Larrabee.
But nVidia (NASDAQ: NVDA) has taken plenty of shots at Intel’s CPU business as well. “We are confident that our license, as negotiated, applies,” said CEO Jen-Hsun Huang in a statement. “At the heart of this issue is that the CPU has run its course and the soul of the PC is shifting quickly to the GPU. This is clearly an attempt to stifle innovation to protect a decaying CPU business.”
At issue is the 2004 license, which allowed nVidia to provide chipsets for Intel-based motherboards. nVidia had been in the AMD (NYSE: AMD) space for years, but it took a long time for it to get on the Intel side and the payoff was big. Chipsets accounted for 21 percent of nVidia’s business in fiscal 2007, or $661 million, its last full reported year.
Intel maintains that the license only applies to its current product design, where the frontside bus connector to a memory controller is required. The Core i7 “Nehalem” design moves the memory controller into the CPU, a huge shift in the architecture. So Intel says the contract doesn’t allow nVidia to make chipsets for Nehalem motherboards, while nVidia claims it does.
After a year of claims and counterclaims over the license proved fruitless, Intel spokesman Chuck Mulloy said the company filed the suit asking for the court to decide. Its filing with the Court of Chancery in the state of Delaware said, in part, “Intel has been in discussions with Nvidia for more than a year attempting to resolve the matter but unfortunately, we were unsuccessful. As a result Intel is asking the court to resolve this dispute.”
Intel is asking the court for declaratory judgment. It’s not seeking injunction or damages since there are no products involved. Intel also wants the court to declare nVidia breached the agreement because they claimed they were licensed when they were not. It is asking for lawyer fees and whatever customer fees the judge decides.
Why is this an issue?
Insight 64 Research Fellow Nathan Brookwood is confused as to why this is even a problem. “[nVidia] shouldn’t even care. I don’t know why they are caring,” he told InternetNews.com. “At least from my perspective, and I haven’t talked to nVidia about it, I don’t see where there is a commercial business opportunity for a third party chipset in an era where the graphics and memory controller are integrated in the CPU package.”
In addition to Nehalem absorbing the memory controller, Intel’s upcoming 32nm dual core processors codenamed “Clarkdale” and “Arrandale” will have integrated graphics processors on the chip die.
With graphics and memory controllers on the CPU, there isn’t much left for a chipset to do. All that’s needed is a south bridge with storage and LAN controllers, and that’s not much of a business, said Brookwood.
He thinks nVidia wants to stay in the chipset business that may still exist around the forthcoming Nehalem processors, but adds there isn’t much opportunity.
“It has nothing to do with who has the licenses for what busses. It has to do with the fact Intel is producing processors with integrated graphics inside the package and quad core without integrated graphics,” he said.
Next page: Offering a better product through the chipset?
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Ujesh Desai, vice president of product marketing for nVidia, argued that this is about offering a better product to customers through the chipset. “Our business is graphics, as opposed to Intel’s graphics that tend to be very poor. They want to bundle their graphics so you don’t have to take our graphics, so they don’t give you a choice. We think a consumer should be able to choose,” he told InternetNews.com
Not so, insists Mulloy. “This is about IP rights,” he said. “It’s an asset that our investors expect to get a return on and whether it comes from those IP assets being used in our products or licensed for use in someone else’s products, we expect people to adhere to the license.”
Neither Intel nor nVidia would disclose whether Nehalem was brought up during negotiations. Work began on the new architecture in 2003, but whether that new architecture was disclosed to nVidia at the time of negotiations is unclear.
If history is a guide
nVidia believes the contract as negotiated still applies to Nehalem even though Nehalem is very different from the old architecture. That’s something else the two firms disagree on. “They are trying to call it a new architecture, but it’s just repackaging,” argues Desai.
However, nVidia might want to look at past precedent. When Intel released the Pentium 4 in 2001, it told all Pentium III licenses they needed a new bus license to build P4-compatible motherboards.
VIA Technologies, then a major player in the chipset space, said it didn’t need one. Intel put legal pressure on motherboard OEMs and VIA-based motherboards disappeared from store shelves almost overnight.
