Monday, December 17, 2001
Intel slabs a law suit on VIA for the infringing of P4 interface technology. On the other hand, VIA knows that the market is demanding a DDR chipset to work with the P4 processor. Won Chi Chan''s decision is to go with "What the customers wanted".
P4X266 Law Suit
Intel, Inc. of USA files lawsuit against the Taiwanese company VIA Technologies, Inc. Intel alleged that VIA (VIATechnologies, Inc.) infringes on five of its special patents. In the case filed in Delaware US District Court, Intel name VIA’s P4X266 and P4M266 chipset as in violation of Intel’s Pentium 4 related patents. It is asking for an unspecified amount of damage plus a request for injunctions. It pointed out that VIA was pushing their P4 chipset without proper license from Intel.
On the other hand, VIA had to answer to their customers. Their customers saw the chipset provides golden opportunity to get away from the Rambus licensed technology but still able to accommodate the new P4 CPU. Chipset is also called “core logic” which facilitates the communications between the CPU and its peripheral subsystems.
VIA’s move would enable the motherboard manufacturers to come up with systems cheaper and better than the Intel supported Rambus system. Coincidentally, Intel also announced that they are to introduce a non-Rambus functional chipset on accelerated schedule as early as November, 2001.
As to VIA Technologies, this lawsuit is a setback amid the Global PC market’s slow down. Its key customers, bowing to the shadow of Intel are reluctant to push out new products with the VIA chipset. At the same time, Intel repeatedly warned that those chipset licensing are in dispute.
Andrew Lin, General Manager of JP Morgan Chase of Taiwan expressed that this lawsuit had pushed down the VIA stock price. This lawsuit would also further hinder the sales of VIA P4 chipsets.
Currently, Intel has licensed its technology to ATI Technologies of Canada, Acer Laboratories and Silicon Integrated Systems of Taiwan. All three companies had promised to deliver comparable P4 chipsets later part of this year.
This is not the first time that VIA is in lawsuit. Two years ago, Intel alleged that VIA supports its Pentium III with chipset without proper license. At that time, VIA chipset was supporting a new kind of memory IC that later became the industry standard. That lawsuit was later settled out-of-court. At that time, Intel also had a concurrent lawsuit on VIA involving VIA chipset that supports Advanced Micro Devices, Inc. microprocessors. That case is still pending.
Back in 1999, Intel suited VIA for infringing on PIII interface design. At that time, VIA seek peace and did not counter-suit Intel. As a business strategic decision, Intel and VIA settled out of court. Intel settled because the VIA PC133 chipset would help sell Intel microprocessor. VIA thus became the biggest winner.
Now two years later, the same scene had come on again. Can VIA win this one also? It would be difficult to know. In fact, Intel had contemplated to sue VIA on P4X266 for a long time. It finally filed on September 7 in a US court. Strategically, Intel’s SDRAM enabled 845 chipset was introduced on September 10. This is an important product for Intel. To initiate the lawsuit at the time would give marketing position for the Intel chipset. It was designed to heat up the P4 market.
The normal rule of competition is “If the winner does not make mistake, the running up can never win”. Intel is now determined to win back its chipset market. It has also enabled 3 other companies (ATI, Ali and SIS) to slow down the momentum of the single major competitor VIA.
Market conditions that VIA now face is different from two years ago. Intel was heavily pushing DRDRAM memory while forgetting other product lines. It had drifted away from market reality. This allowed breathing room for VIA’s success. However, in this round, Intel is determined to regain its top position. Therefore, it will be difficult to let go of VIA.
Break down on royalty negotiation sets it on fire
Feeling its mistake in choosing Rambus, Intel announced a new generation of Pentium 4 microprocessors. It also announced the option of using SDRAM chipset. This virtually confirmed that VIA’s risk on development of PC133 and DDR would finally payoff. More important is Intel’s official entry into PC133 chipsets proven that the life of PC133 will be extended.
Well, happiness seldom lasted. Third party P4 chipset producers would still require to pay high royalty fee. VIA has been talking to Intel but could not arrived at a good monitory settlement. Bottom line is that Intel would not accept the discounted royalty fee offered by VIA. Vise president Li summarized it “VIA is willing to pay REASONABLE royalty” signifying that Intel was asking for an UNREASONABLE amount. Unofficial sources reported that other chipset companies like ALI and SIS was paying up to 10% of the chipset price.
On the contrary, VIA felt that DDR chipset would enter into a messy battle in the second half. It, therefore, felt that the 10% royalty would be an over burden. Moreover, VIA has a joint design venture with S3, the graphic company that holds a legal Intel license. VIA also felt that since it holds 40-50% of the chipset market, it should receive at least a 50% discount. Of course, Intel refused.
They had negotiated for a year without settlement. Finally, Won Chi Chen, as a Christian and the CEO of VIA (Click here for Biograpy) decided to leave it up to “God’s Will!” He then disclosed their P4X266 chipset to the public.
At the Computex Show in June, VIA surprised the industry by showing the P4X266 chipset with confidence. It generated some tense moments with Intel. Intel, therefore, declared that any motherboard company uses the P4X266 chipset would be dragged into the lawsuit. At the same time, Wen Chi Chen declared that he could not guarantee that VIA would not sell the chipset before obtaining Intel license. It had generated some smoke and tense moment at the show.
At the end of June last year, AMD Athlon processor was selling well while Intel was recalling its Pentium III 1.13 GHz product. It had to sue VIA in order to demonstrate its mighty cloud. Intel’s game plan was to wipe out VIA together with rival AMD. Therefore, it first picked on VIA that supplied 50% of the chipsets that work with AMD processor. Reason is, AMD processor would not sell without the VIA chipset. Motherboard manufacturers would not be able to build AMD system without chipset.
Intel Licensing Strategy
Intel’s P4 licensing strategy was based on using its second tier competitors to counter its key competitor. It had, therefore, first granted P4 license to ATI, ALI and SIS in January and February time. It also delivered 845 chipset samples this month. At the same time, Intel was stalling the licensing talks with VIA. Concurrently, it is also reported to be in licensing negotiations with other companies like Mitech and nVidia.
From the point of Intel, it was bounded by the former agreement it had signed with Rambus. The agreement allowed the P4 chipset to support only Rambus and SDRAM memories while all other manufacturers had moved to support DDR and SDRAM. From strategic considerations, if the market can accommodate both Rambus and DDR chipsets, Intel’s P4 CPU would receive support in all aspects. Further, if chipset companies can provide low cost and good quality, they would add extra strength to Intel. If Intel can lower its royalty fees, it would allow downstream manufacturers to cut cost and increase volume. That would route out its key competitor, AMD. This should be Intel’s ultimate interest.
VIA Strategy- Courageously Set Low Price
In the previous Pentium III case, VIA won by “Entering market before licensing contract”. It resulted in success. However, Intel wants to push its own chipset in this round and is fighting back in hard ball. It is difficult to predict that whether VIA can overcome this or would it lose with a lot of wounds. However, the fact that the P4X266 has price advantage is undeniable.
Presently the P4X266 is priced at U$35 in comparison to the Intel 845 PC133 at U$40 and the Rambus enabled 850 chipset at U$43. In comparison, even with a 5% volume discount on the Intel chipsets, VIA’s P4X266 still holds 10-20% price advantage.
Added that the P4X266 also has performance advantage and the VIA branding, it would be rather attractive. That is why Vice President Li said “We have faith that we can maintain 50% share of the chipset market for the second half of this year.”
Click Here for Part-5
By: Johnson Wang
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