Tue, Nov 16, 1999 page18

• VIA faces chip industry's Goliath

  PATENT BATTLE While US chip giant Intel is suing VIA and FIC, the rest of Taiwan's high-tech companies are running scared, afraid of the firm's immense clout

  • By Simon Burns / STAFF REPORTER
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  Intel makes the chips, Taiwan makes the computers. Over the past decade, this partnership has brought riches to the US company that invented the Pentium CPU and to the busy little island that puts the devices into PCs -- more than 50 million of them every year. Now, the cosy relationship is starting to break down.

  It began in July, when Intel sued Taiwan's VIA Technologies for patent infringement.

  The dispute flared around a product little known outside the industry, a pair of chips called the chipset. While CPUs, such as Intel's Pentium, are the stars of the PC show, the chipset plays a vital supporting role. The CPU and the chipset sit side-by-side on the motherboard, the PC's main circuit board.

  VIA specializes in chipsets and expects to earn more than US$250 million from them this year. To make its chipsets work with Intel's CPUs, VIA licenses technology from the US company. This requires delicate negotiation: Intel also makes chipsets, so the two companies are competitors as well as partners.

  Intel claimed that VIA's newest chipset contravened the licensing terms. VIA sought sought the help of another large US chip maker, National Semiconductor, which agreed to manufacture the disputed chipset for VIA. National has a cross-licensing deal with Intel, which allows it to use Intel's technology in its own products.

  But Intel argues National has no right to use that technology in chips it makes for VIA.

  In October, Intel retaliated with a curiously selective series of lawsuits against VIA's customers, some based on use of the disputed chipset in products. First International Computer (FIC), VIA's sister company, was sued; other companies producing identical products were not.

  The move was a further attempt to put pressure on VIA, analysts said, though Intel denied the charge.

  Intel's relationship with Taiwan has gone through rough patches before. In 1995, for example, legal pressure from Intel forced Taiwan's United Microelectronics Corp (UMC) to abandon its own Intel-style CPU.

  The difference now is that Intel, which habitually uses technical know-how to lead the market by the nose, finds itself in the unfamiliar role of follower. For the first time ever, a competitor, US-based Advanced Micro Devices (AMD), is selling a CPU, the Athlon, that outperforms Intel's fastest Pentiums.

  While AMD's Athlon -- supported by a VIA chipset, on motherboards made in Taiwan -- steals the critics' plaudits, Intel's fastest CPUs have been hamstrung by delays with the US company's new 820 chipset.

  The delays have helped VIA to grab some 25 percent of the chipset market; Intel holds around 50 percent.

  Meanwhile, VIA has begun to develop its own low-cost CPUs, threatening to trigger a price war. And another Taiwanese chipset maker, Silicon Integrated Systems (SiS), is also ready to make CPUs.

  As Intel battles AMD's Athlon in the market, and VIA and FIC in the courts, Taiwan is running scared. After Intel sued FIC, its fellow motherboard makers expunged references to the Athlon from their Web sites.

  These companies admit they step softly around issues that might offend Intel -- they depend on supplies of chipsets and technical data from their giant partner to develop and manufacture products. Staff at one of the biggest, Asustek, were forbidden to discuss the company's Athlon motherboard with the press.

  Intel executive vice president, Paul Otellini, flew to Taipei last week, saying the company had nothing to apologize for and vowing to protect Intel's patents.

  VIA however, seems undaunt-ed. Softly-spoken CEO Wenchi Chen knows his adversary well: he used to work there.

  Chen says VIA will become "a fabless Intel," a more nimble Intel without the hugely expensive fabs, or fabrication facilities, where chips are made. Conveniently, Taiwan's independent fabs, such as UMC, will soon be able to offer VIA cutting edge CPU manufacturing facilities.

  VIA's backers include the Formosa Plastics Group, Taiwan's largest conglomerate. But the real source of the CEO's strength may be a higher power still. Chen is a born-again Christian who believes strongly in divine guidance.

  And in the David and Goliath battle with Intel, whose 1998 revenues of US$26 billion don't fall far short of the US$33 billion earned by the island's entire technology industry, Taiwan needs all the help it can get.
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