Intel (Nasdaq: INTC) is following a path well-trodden by other giants of industry. When it comes to drawn-out government antitrust cases, sometimes it makes sense just to "pay the man" and steer clear of Uncle Sam's stinging backhand. On Monday, Intel and the FTC suspended trial proceedings to work on a settlement of their ongoing dispute. While they haven't reached any formal agreement, it looks like Intel is ready to bury the hatchet with arch-rival NVIDIA (Nasdaq: NVDA) and move beyond its legal woes.

War and peace
Intel first made its peace with AMD (NYSE: AMD), ending their long-standing antitrust litigation for $1.25 billion last November. However, lingering questions still remained. There were reports late last year after the AMD settlement that the FTC was focusing in on Intel's competitive practices against NVIDIA. At the center of their dispute was a battle over NVIDIA's chipset business.

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.

Troubled waters
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 (NYSE: MOT) was looking at a Tegra-based processor by year's end.

However, as NVIDIA tells us to be patient, rivals Qualcomm (Nasdaq: QCOM) and Texas Instruments (NYSE: TXN) keep announcing a slew of wins. Qualcomm is dominating high-end Android design victories. Its Snapdragon processor now powers Sprint's flagship HTC EVO 4G phone, and it also scored a plum spot in the tremendously popular HTC Droid Incredible. Meanwhile, Texas Instruments reportedly will once again power Verizon's Droid when the second edition rolls out this summer.

But wait -- there are tablets, too, right? Well, wrong. Remember that slew of tablets expected to destroy Apple's (Nasdaq: AAPL) iPad? Well, they kind of ... don't exist yet. Since one of Tegra's main selling points is its ability to handle multimedia and offer rich graphics, it'd be a natural fit for any tablet maker. Problem is, nothing has emerged to challenge the iPad; Apple still has the market to itself, and it isn't looking for NVIDIA's help.

Finally, those reports that NVIDIA had scored a win on Nintendo's newest DS portable systems? Looks like that didn't happen, either. Ouch.

Final thoughts
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.