http://torontostar.morningstar.ca/globalhome/industry/news.asp?articleid=366052
Summary:
After a disagreement with regards to a prior licensing pact between Intel and Nvidia which allowed Nvidia to produce chipsets that are compatible with Intel’s processor. However recently, Intel settled the legal dispute and formed a new cross-licensing deal with Nvidia through an agreement to pay $1.5 billion over the next five years. Despite having to pay $1.5 billion, Intel has now limited Nvidia’s access to some of Intel’s microprocessor patents, which are sufficient to prevent Nvidia from further making chipsets for Intel’s processors. Nevertheless, the access to Intel’s technology will certainly benefit Nvidia’s “Project Denver”, an initiative with ARM to develop an ARM-based CPU to contend the x86 CPU’s from Intel and AMD.
Connection:
The legal dispute mentioned in this article is an example of an unusual or infrequent event described in Chapter 3. In order to settle the legal dispute, Intel decided to pay $1.5 billion to Nvidia. Technically speaking, the $1.5 billion cross-licensing fee can be classified as an operating expense since Intel is implementing Nvidia's products as a part of Intel's CPUs. However, due to the rarity of this event, Intel has to record the $1.5 billion fee under the losses from unusual or infrequent events section in the multi step income statement. As a result, the $1.5 billion licensing fee will be entered in the multi-step income statement as a negative value to reduce the net income.
Reflection:
From my perspective, I believe that Intel's decision to settle the legal dispute with a $1.5 billion cross-licensing fee is a strategic decision. This fee allows Intel to implement Nvidia's graphic cards into their CPUs and blocks the Nvidia's access to some of its advanced technologies. Also, by settling with a cross-licensing fee during the early stages of Nvidia's "Denver Project", Intel's CPU technology will be one step ahead of Nvidia and still maintain its quality by implementing Nvidia's high quality graphic cards into their CPU. Even though the cross-licensing with Nvidia is only effective for the another 5 years, Intel have many options during those 5 years to plan whether they should develop its own graphic cards, cooperate with another graphic cards supplier, or even continue the cross-licensing with Nvidia.
