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Intel to buy DEC's Alpha?
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October 6, 1997: 6:50 a.m. ET
Chip giant said ready to pay $1.5B for technology in settlement pact
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NEW YORK (CNNfn) - Digital Equipment Corp. is reportedly poised to sell its Alpha chip technology to Intel Corp. for more than $1.5 billion.
The deal, if it materializes, would also settle an ongoing patent dispute between the two technology giants, according to a report in The Wall Street Journal Monday.
Nevertheless any possible transaction could fall apart and would require Federal Trade Commission antitrust review.
Neither company would comment on the information provided to the Journal by sources familiar with the situation. Currently Digital is suing Intel, claiming Intel stole vital chip technology.
While the financial terms of the prospective settlement are still muddy, the deal would reportedly involve both immediate payments and long-term price cuts for Digital on Intel chips. One source told the newspaper Intel could buy the Alpha operations for $650 million. Intel would also reportedly pay $200 million to license the Alpha. Digital could receive $100 million or more in Intel chip discounts.
A deal would mean Digital would be free of a significant investment drain and add to cash reserves currently at about $2 billion. It would also give the company more flexibility in designing new systems.
However, giving up on the Alpha would be a defeat for Digital Chief Executive Officer Robert Palmer, a semiconductor engineer who saw the chip as key to Digital's turnaround strategy. While Palmer has remained a backer of the chip, some of Digital's board members reportedly see the Alpha project as a burden.
Such a settlement would also give Intel the right to use Alpha technology in its own next-generation chip. The deal currently under discussion would reportedly obligate Intel to produce the Alpha for several more years. However, Intel would not be required to dedicate any of its considerable marketing budget to computers based on the chip.
FTC approval may also be hard to get because Intel's control of Digital's chip operations would grow Intel's already dominate grip on the processor market. However, some feel the insignificant market share for the Alpha would convince the FTC that Digital has tried unsuccessfully to find other partners.
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