Subject: DEC v. Intel: TRUE FACTS From: Terry C. Shannon Date: 15-May-1997 Organization: Shannon Knows DEC: THE Digital Information Source Digital v. Intel: Andy's Big Surprise (c) 1997 by Terry C. Shannon, Publisher, Shannon Knows DEC On November 1, 1995, Intel Corp. stunned the IT marketplace with the announcement of an x86 chip whose performance eclipsed the expectations of analysts and rival vendors alike. Even after the chip's performance specifications were trimmed by 15 percent due to an error in the 023.eqntot benchmark, the Pentium Pro was a Big Surprise to the RISC camp. With the exception of DEC, RISC vendors were unpleasantly surprised to see their performance advantages-and value propositions- marginalized. On May 13, 1997, Intel found itself on the receiving end of an equally Big Surprise. With no advance warning, Digital Equipment Corporation filed a lawsuit in U.S. District Court in Worcester, MA, claiming that Intel's Pentium processor family violated ten DEC patents. While the details of the technologies are somewhat arcane, they involve branch prediction, cache management, and cache coherence-the "secret sauce" of faster, better, cheaper RISC technology. Given the potential impact of the lawsuit, Digital articulated its position via a Tuesday morning analyst teleconference. Bottom line: Digital--which is by no means a litigious creature--is prepared to do "whatever it takes" to defend its patent and intellectual property rights. Bob Fesses Up For the first time, Digital disclosed details of its efforts to persuade Intel to adopt the Alpha architecture. During 1990 and 1991, Digital and Intel executives held a number of discussions regarding an Alpha licensing agreement. Intel ultimately decided to go its own way. Given Intel's growing dominance of the volume marketplace, the decision to eschew a foreign 64-bit architecture for which no applications yet existed was prudent indeed. Concurrently, Digital made a prudent decision: the firm scuttled its initial plans to debut a low-cost Alpha microprocessor designed to compete head-to-head with Intel. The plot thickened shortly after the Pentium Pro debut. Blindsided by the capabilities of the 200 MHz Pentium Pro, DEC engineers--including Alpha architect Dick Sites--took a long, hard look at Intel's architecture. If imitation is the most sincere form of flattery, Team Alpha apparently was quite flattered by the Pentium Pro microprocessor. Evidently Intel's approach to branch prediction and caching seemed familiar to the Alpha developers, and DEC began a "rigorous and exhaustive" comparative analysis of the two architectures. The Smoking Banana Whether Intel engineers took the high road or the low road when it comes to branch prediction and related technology remains to be seen, but Digital made creative use of a previously published account of Intel's approach to technology. Mr. Palmer quoted a passage from the Corporate Focus feature in the August 26, 1996 Wall Street Journal. In the article, entitled "Intel Shifts Its Focus To Long-Term Original Research," Intel COO Craig Barrett is quoted as saying, "Now that we're at the head of the class and there's nothing left to copy." Said CEO Andy Grove, "We're a big banana now... we can't rely on others to do our research and development for us." RISC-Taking? To be sure, the decision to file a lawsuit against an industry behemoth is not something that a prudent company undertakes lightly. Digital has about $2B in the bank while Intel's FY96 profits amounted to over $5B. Accordingly, dragging Intel into court might be seen as the silicon equivalent of doing battle with Joe Camel and his Big Tobacco minions. Moreover, it is arguable that Digital's access to Pentium processors might suddenly dry up once existing contracts are fulfilled. On the other hand, Digital's choice of legal counsel reflects the firm's determination to take the legal route. Lead Digital attorney Herb Schwartz of NYC-based Fish & Neave is no slouch when it comes to patent infringement: in the early 1980's, Schwartz successfully helped Polaroid win over $900M in damages from Kodak Co. for instant-camera patent transgressions. Digital obviously is dead serious about enjoying a Kodak Moment at Intel's expense. Wall Street apparently agrees that Digital is as serious as a heart attack: DEC on Tuesday was the Big Board's third most active issue, gaining 2 1/4 points to close at 35 3/8. Intel, which topped Nasdaq actives, dropped 6 3/4 points to close at 152 3/8. A Preemptive Prescription Digital launched a bolt-from-the-blue legal salvo at Intel, and rightfully so: had Digital forewarned Intel about the impending litigation, Intel's lawyers very likely would have countered with a change of venue request. Not only would this deprive DEC of its home court advantage, it's certain that Intel would press for a venue with a crowded docket. Given the rate of change in the technology sector, delaying tactics are goodness, especially to a well-heeled defendant. Despite Digital's posturing, and despite media speculation, DEC's goal is not to drive a stake into the heart of the incumbent Pentium lineup. As a senior Digital executive pointed out, "we're not asking Intel to stop shipping current products, but we want them to rethink how they design future architectures." Treble damages and a healthy royalty-based revenue stream from Pentium processors would be very well-received in Maynard, and equally well on Wall Street. No less important is the potential impact on future Intel hardware designs, and herein lies Digital's strategic agenda. Indeed, forcing Intel's ia64/Merced design team back to the drawing board would be a strategic coup for Team Alpha. Digital currently enjoys a projected two-year window of opportunity in the 64-bit marketplace; extending this window certainly would benefit the Maynard firm while causing heartburn among vendors who have adopted an Intel-centric approach to 64-bit computing. Calling the Spin Doctors At first blush, Digital's shot across Intel's bow is the marketing Play of the Day. DEC already has reaped tremendous media coverage from the event--and the May 14 followup ad in the Wall Street Journal didn't hurt, either. Unless Digital stays the course with an aggressive and proactive campaign to reach Key Influencers, the firm may find that the legal route is replete with punji stakes. SKD believes that the pundits in the trade and business press will conclude that "DEC no longer can compete with Intel on the technical playing field, and thus is shifting the battle to the courts." Nothing could be further from the truth, but it remains incumbent on Digital to insure that its position is not eroded by the vicissitudes of Monday morning quarterback-cum-pundits or by the tendentiousness of the trade press.