War and peace
Intel first made its peace with AMD
As background, in 2004 Intel and NVIDIA struck a licensing deal. NVIDIA was able to get a license agreement to develop chipsets for Intel processors, in exchange for Intel licensing a portfolio of graphics-processing patents. That agreement held up until 2009, when Intel alleged that the license didn't apply to its next generation of processors.
Intel's chipset feud was a huge blow to NVIDIA. Its core graphics card business is extremely cyclical and took an extreme downturn with the economy. In mid-2009, chipsets were the most robust part of the company's business.
Source: Company filings and Capital IQ, a division of Standard & Poor's.
However, without a license to make chipsets for Intel's newest processors, the segment would wither away in the coming years. Of course, there was some gamesmanship afoot. If NVIDIA had offered additional intellectual property, it could have found a way to continue licensing Intel's newest chips. However, the company either found that price too steep, or wanted to take a stand against the industry's most formidable player.
Tegra, a history of stalled growth
As an NVIDIA investor, I'd hoped that other growth initiatives, specifically their Tegra chip, could fill the revenue and profits that would be lost from chipsets. However, growth in this segment has proved more elusive than investors would hope for. The company has seen few wins outside of Microsoft's Zune and Kin smartphones. NVIDIA has repeatedly said it has a significant pipeline of design wins, and website Conceivably Tech recently reported that Motorola
However, as NVIDIA tells us to be patient, rivals Qualcomm
But wait -- there are tablets, too, right? Well, wrong. Remember that slew of tablets expected to destroy Apple's
Finally, those reports that NVIDIA had scored a win on Nintendo's newest DS portable systems? Looks like that didn't happen, either. Ouch.
While we won't know exactly what form an FTC settlement with Intel could take, chances are that a new agreement for licensing next-generation chipsets to NVIDIA will be part of it. With NVIDIA struggling to gain traction with Tegra, that's a huge benefit to the company.
However, you have to wonder how far behind NVIDIA is in developing chipsets for Intel's next generation architecture. It's pretty tough to leave a high-technology field and then catch up while competitors have been refining and finding ways to cheapen their chipsets for more than a year. NVIDIA investors would be wise to look for a "positive outcome" involving something more than just making the licensing agreement whole once again.
Nevertheless, by reading the tea leaves, you have to believe an agreement would breathe some life back into a very large, stable segment for the company. Before 2008, the segment had 14 straight quarters of operating profits. While I don't think it's time to abandon Tegra, the presence of a healthy chipset business takes pressure away from Tegra's need to immediately contribute.
For Intel, offering a competitor some minor concessions in exchange for being free of the government's spotlight seems like a fair deal in its own right. There will be future battles between the two, but for the interest of all parties involved, let's hope those battles are inside our computer cases instead of the offices at the FTC.
As we move into a competitive era of smaller processors, are the legal battles just heating up? Is now the time to invest in Intel or NVIDIA? Share your thoughts in the comments box below.
Eric Bleeker owns shares of NVIDIA. Intel, Microsoft, and Sprint Nextel are Motley Fool Inside Value recommendations. Apple, Nintendo, and NVIDIA are Motley Fool Stock Advisor picks. The Fool has created a covered strangle position on Intel. Motley Fool Options has recommended buying calls on Intel and a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.