10/20/97 INTEL INSIDE...DEC'S CHIP PLANT

INTEL INSIDE...DEC'S CHIP PLANT

A DEAL BREWING BETWEEN Intel and Digital Equipment Corp. may be more beneficial to Digital than initially thought. People close to the deal--which would settle a nasty patent infringement suit that Digital filed against Intel--say Digital will not sell its Alpha chip technology.
Rather, Intel is negotiating to buy Digital's ''fab'' chip plant in Hudson, Mass., for $650 million and to make Alpha chips there under contract to Digital for as long as a decade. Intel would also pay Digital up to $200 million for the right to use certain of its patents. And Digital would get big discounts on future purchases of Intel processors.
Analysts endorse Digital's move as a chance for the company to exit the chip-making business, where it lost an estimated $100 million last year, and still market its powerful Alpha. ''It gets the fab monkey off our back,'' says one Digital exec. Neither company will comment officially. DEC CEO Robert Palmer has been pushing hard to settle the case.
One surprise: Intel is also negotiating to obtain manufacturing--and perhaps intellectual property--rights to the high-performance, low-power StrongARM, a DEC chip used in Apple's Newton and early Network Computers.
EDITED BY LARRY LIGHT
Andy Reinhardt and Paul C. Judge