The chip giant settled with AMD. But another rival is making noise about anticompetitive behavior.

Nvidia's Huang is gunning for Intel. Photo: Nvidia

You’d think Nvidia CEO Jen-Hsun Huang would be happy.

After bumping along as low as $7 a share at the beginning of the year his stock is up near $14. Several months ago Apple (AAPL) began using his graphics chipset – a group of circuits designed to work together – across nearly its entire line of Macs, giving him a very high-profile endorsement. And in the white-hot netbook segment, his Ion processors have won raves for turning underpowered laptops into HD video machines.

Problem is, both of these acclaimed Nvidia (NVDA) products might be dead in the water.

Why? Huang blames chip giant Intel (INTC). Nvidia’s graphics chipsets, which Steve Jobs liked enough to buy by the boatload, aren’t allowed to work with Intel’s latest offering, code-named “Nehalem” – and in the computer world no Intel compatibility means no mainstream future. Nvidia’s Ion chip is designed to work alongside the chip giant’s Atom processor, but lately it’s been priced out of the market by – you guessed it – Intel.

Feeling AMD's pain

All of this has piqued the interest of the Federal Trade Commission, which is looking into whether Intel has improperly used its power in the computer chip market to choke rivals. For those who are handicapping the chances that the FTC will bring charges, Nvidia’s gripes have recently taken on new importance: Advanced Micro Devices (AMD), which had been Intel’s main critic, recently settled its antitrust complaints with Intel for a tidy sum of $1.25 billion. That leaves Nvidia to bang the anti-Intel drum.

“I’m sympathetic to what AMD had to go through over the years,” Huang says.

Intel says it’s a tough but fair competitor, and that Nvidia has caused its own problems. To wit: The two companies signed a limited patent-sharing deal five years ago, and Intel says that if Nvidia had read the fine print, it would have noticed that designs like the current Nehalem chips weren’t covered in the agreement. And the Ion dispute? Well, Intel says it just lowered prices on its Atom chipsets to stay competitive. What’s wrong with that?

Nvidia tells a different story. Executives there say they’re a victim of the same kinds of tactics that got Intel into antitrust trouble in Europe and Asia. Nvidia believes it should be authorized to make Nehalem-compatible chipsets under the 2004 agreement; it claims Intel is just getting litigious to stop a competitive threat. And with Ion, Nvidia accuses Intel of unfair pricing that locks it out of the market. Intel says Nvidia just doesn’t understand the incentives it offers customers.

(The two companies are battling in court over the chipset agreement. Intel has asked a Delaware court to clarify whether Nvidia has the right to build Nehalem chipsets, and Nvidia has countersued for breach of contract.)

The courts will ultimately decide who’s right – that is, unless Intel decides to ink a settlement with Nvidia, too. Even then, that probably won’t be the end of Intel’s legal headaches. Maybe that’s the trouble with being a giant. There’s always some kid with a slingshot gunning for you.

follow me on Twitter: twitter.com/jonfortt

Will tomorrow’s PC be a nimble netbook or a high-def laptop? Google and AMD recently offered opposing views.

If Google has its way, the mainstream PC of the future will be a lot simpler than the one you’re using right now.

Like a TV, it will turn on almost instantly instead of taking nearly a minute to boot up. It will do everything through a web browser, pulling down most programs and data from the Internet. It’ll make do with a low-cost processor and will carry a cheap price tag – kind of like today’s stripped down netbooks, only with even fewer frills.

That’s just Google’s (GOOG) vision. A few miles down the road from the search giant’s Silicon Valley headquarters, the folks at chipmaker Advanced Micro Devices have a very different idea.

AMD is wagering that the majority of tomorrow’s shoppers will want more performance from their PCs. It is putting the finishing touches on a new chip that combines a microprocessor and a graphics core in one – a trick it hopes will attract consumers who want smooth high-def video and rich 3D gaming in a slim, low-cost package.

Who’s closer to the mark?

Of course, it’s too soon to tell. But before long shoppers will get to vote with their wallets.

Last week Google engineers showed off an early version of their browser-based Chrome operating system, what they call “a better model for personal computing.” (When it’s broadly available, Chrome will come pre-installed on netbooks that are specifically designed to run it.) A few days earlier, AMD announced that its Fusion processors would arrive in 2011. If all goes as planned, the two technologies will be duking it out on retail shelves in a little more than a year.

The contrasting ideas from Google and AMD come at a turbulent time for the computer industry.

Sales have slowed in the global recession, pressuring the PC revenues of stalwarts like Hewlett-Packard (HPQ) and Dell (DELL). Hardware profit margins have also suffered as bargain shoppers shun higher-priced machines in favor of netbooks with small screens, modest horsepower and low price tags. (The exception is Apple, which has somehow managed to keep selling premium PCs in a historic recession. Go figure.)

The big question is where the industry’s next stage of growth will come from. Will consumers shift their dollars toward wireless computing devices that resemble Amazon (AMZN) Kindles, Apple (AAPL) iPhones and Google Chrome-powered netbooks? Or will they find reasons to keep buying full-blown computers?

Google argues the former. While Windows PCs won’t go away, Google’s thinkers believe a lot of folks would be happy with a simpler, more affordable computer that just gets them online. Considering how netbooks have become the hot ticket in the PC business lately, Google may have a point.

But there’s also evidence that consumers aren’t ready to give up our software-packed PCs anytime soon. As we continue to accumulate gadgets like Flip video cameras and iPhones, we’ll need more powerful computers to manage the digital content – something a basic Chrome OS device won’t be able to do.

Brisk sales of Windows 7 and Apple’s (AAPL) Snow Leopard operating system also prove that the PC-buying public can still get excited about slick-looking operating systems that use 3D effects and animation to help users get things done. That’s a welcome sign for a company like AMD, which has bet its future on the notion that the world will keep its healthy appetite for computers with some horsepower.

follow me on Twitter: twitter.com/jonfortt

Settlement or no settlement, Advanced Micro Devices CEO Dirk Meyer still doesn’t trust Intel. That much was clear when I sat across the table from him last week at AMD headquarters in Sunnyvale.

I had a chance to talk to Meyer during the AMD analyst meeting last Wednesday. In a series of presentations that morning, Meyer and his lieutenants had made a cogent case that 2010 would be their comeback year. They have cut costs, pared non-core businesses, and returned to designing good chips and delivering them on time. Next year the company plans to begin selling several new chips, including a first: one that has a microprocessor and a graphics processor on the same chip.

But what about Intel (INTC), I asked him. In the past when AMD (AMD) had good products, you accused the chip giant of using its market dominance to unfairly squash you. (Intel has maintained that it plays by the rules.) Why should this time be any different? Do you think the playing field is level now?

Meyer knew what I didn’t: that in a few hours, he and Intel CEO Paul Otellini would announce a massive $1.25 billion legal settlement with Intel that’s supposed to put the companies’ acrimonious past behind them. That didn’t seem to change Meyer’s outlook on the chip giant, however.

“I would not tell any regulator around the world who’s still looking at Intel’s business practices to stop,” Meyer said. “The work that we’ve done needs to continue.”

Sounds to me like these two rivals might have put down the legal hatchet for now, but they haven’t quite buried it.

follow me on Twitter: twitter.com/jonfortt

Is it time to dust off the party hats?

From the cheery headlines accompanying the latest round of tech earnings, you’d think so. Google (GOOG) CEO Eric Schmidt declared last week that, “the worst of the recession is behind us.” IBM (IBM) actually boosted earnings targets for the year. Taken along with the stimulus potential of Windows 7, Microsoft’s (MSFT) critically acclaimed PC operating system that launches this week, some say happy times are here again.

Not so fast. As we head into week two of this round of tech earnings, it’s important to keep in mind what these numbers show, and what they don’t.

What they show is this: we seem to have dodged the worst-case scenario. In those dark post-Lehman days at the beginning of the year it seemed the global economy was headed off a cliff, and nary a big tech CEO dared predict a recovery in 2009; as stock prices plunged and customers bolted, the sunniest forecast most would offer was carnage this year, followed perhaps by less carnage in 2010.

Now it’s a different story. Since the March market rebound and some calming statements from Fed Chairman Ben Bernanke, the suits have changed their tune. Intel not only reported a blowout quarter, but also pointed to a healthy holiday season; even embattled Advanced Micro Devices (AMD) said it expects a modest rise in sales. No one knows exactly what Apple (AAPL) will say when it reports earnings this week, but it probably involves an obscene volume of iPhones. In a turnabout from a year ago, all across Silicon Valley executives are whispering about an upbeat Q4.

So what’s not to like? Well, what these numbers don’t show is sustained revenue growth – the stuff that healthy earnings, stock prices, and economies are built on. IBM’s quarterly sales were down from a year ago, as were Intel’s. Other companies saw modest increases, but it’s too soon to tell whether the credit belongs more to a mounting recovery or to easier comparisons with last year – remember, things got bad right at the end of the third quarter, making these reports look impressive by comparison. Even the holiday season numbers won’t shed much light on whether this is a strong tech recovery or a weak one; last year’s Q4 numbers were so horrible that it won’t take much to blow them away.

No, to get a true read on the strength of this recovery, we’ll have to wait until April, when the big techs start reporting Q1 numbers. By then the euphoria of averted disaster will have worn off, and we’ll see if consumers and businesses have anything left to spend after the holiday season.

If sales slow down dramatically, we could be in for something like the uninspiring “L-shaped recovery” that Oracle (ORCL) CEO Larry Ellison predicted last month. If they continue chugging along despite high unemployment and foreclosures, then those party hats might be in order.

Computer makers hope that stylish new laptops like Hewlett-Packard's Pavilion dm3 will lure shoppers away from low-cost netbooks. Photo: HP.

There’s going to be a PC retail showdown this holiday season. Let’s call it the netbook vs. the nymph.

In the netbook corner: the cheap, small, underpowered laptops that are all the rage lately. Asian manufacturers like Asus first introduced them, and consumers love them because they handle documents, e-mail, and web surfing for as little as $300. The big PC makers offer their own models, but also secretly hate that netbook fever is sucking the profits out of the industry.

In the nymph corner: a newer class of svelte yet powerful laptops that could steal some attention from netbooks. (The industry calls them “thin and light,” but hey — nymph is more fun.) Like their competition, nymphs are slim — some of them less than an inch thick — and they often eschew extras like DVD drives for the sake of portability. Perhaps best of all, they do a solid job running Microsoft’s eagerly anticipated Windows 7 operating system, which arrives next month.

Today PC heavyweight Hewlett-Packard (HPQ) is the latest to unveil several eye-catching additions to the nymph category, including the Pavilion dm3 at $550 and the Envy 13 at $1700. Both use the latest mobile processors from Intel (INTC) or Advanced Micro Devices (AMD) and deftly handle tasks like 3D gaming and video editing.

What’s at stake here? Just the near-term health of the PC business.

Like most other categories, PCs have had a rough year. Penny-pinching businesses have been slow to spend on technology in a tough economy. Consumers have been shopping mainly for bargains. Meanwhile many global PC makers have cut prices to drum up sales. “The battle for market share is being fought on the price front, which will ultimately hurt the whole industry,” as First Global Research put it in a recent note.

If shoppers continue to bargain shop for netbooks this holiday season — and analysts expect they will — end-of-year growth at companies like HP, Dell (DELL), Intel, and AMD won’t look so hot. For the holiday season, says NPD Group analyst Steve Baker, “unit sales are going to be up big double digit percentages — above teens, I would think. Dollars will be pretty much flat.”

That is, unless the industry can convince consumers to spring for more powerful machines.

Leslie Sobon is trying to do exactly that. Sobon, marketing chief at AMD, has redrawn the sales pitch for computers like HP’s dm3 and Acer’s Aspire 5538, which contain her chips. Rather than emphasize stats like gigahertz, bus speed, dual-core, and the like, the new VISION strategy focuses on telling customers what the PCs can do — an approach that AMD’s research showed is sorely lacking at retail. “We’re focused on entertainment — things like photos, like Blu-ray, Hulu,” she says. “See, share, create.”

Customers are more likely to buy a better-equipped laptop, Sobon’s market research suggests, if they have a clear sense of what they’re getting for the money.

Folks like J.P. Morgan analysts Mark Moskowitz and Anthony Luscri don’t sound too optimistic about how the upsell will go over this year. “With consumers seeming to flock to low-cost netbooks, we do not expect a shift back to standard notebooks to run Windows 7 en masse,” they wrote recently.

Indeed, netbooks are getting more attractive — and more powerful — all the time. Along with the rest of its PC lineup, HP introduced two $400 netbook standouts of its own: the Mini 110 by Studio Tord Boontje, which features a lace-like, three-dimensional look; and the Mini 311, which can handle 1080p high-definition video NVIDIA’s (NVDA) Ion graphics processor.

With products like that hitting the market, there won’t be a huge shift away from netbooks anytime soon — but PC makers will take any upsell they can get.

(AAPL) (MSFT) (GOOG) (INTC) (AMD)

(AAPL) (HPQ) (AMD) (INTC) (RIMM) (MOT) (T) (MSFT) (GOOG)

Microsoft's follow-on to Vista, Windows 7, is getting closer to launch. Guess what? The buzz is better than you might expect. (MSFT) (HPQ) (DELL) (AAPL) (INTC) (AMD)

Cisco CEO John Chambers needs to try new things to keep his company growing while corporate technology budgets shrink.

It is the buzz of the tech world: Cisco Systems may soon try selling servers, those heavy-duty computers that companies use to run critical back-office applications. The prospect of router giant Cisco's entering the already crowded $55-billion-a-year server market is intriguing (imagine if LeBron James decided to try his hand at football) but also has the potential to disappoint. (Remember Michael Jordan's ill-fated effort to play professional baseball?)

With his server gambit, Cisco (CSCO, Fortune 500) CEO John Chambers appears to be targeting a very specific niche: the trendy "virtualization" segment of the server business, which is expected to grow 43% this year to $2.7 billion worldwide, according to research from Gartner. Virtualization basically is a way to make servers more efficient. Using specialized software, one computer with a hard drive and a network connection can act like several smaller computers and hard drives on different networks. When everything goes right, more work gets done with less hardware and electricity. Multiply that effect in a data center with thousands of servers, and you can see why corporate customers like it, especially in times of cutting costs. Computer maker Dell (DELL, Fortune 500), for example, believes it can cut its information technology budget 10% this year without sacrificing productivity.

Full story (CSCO) (IBM) (HP) (DELL) (VMW) (INTC) (AMD) (MSFT) (JAVA)

The world's two largest creators of computer chips are cooking something up together.

On Monday morning, there will be a chip industry summit of sorts: Intel, the world's largest chipmaker, and Taiwan Semiconductor Manufacturing Company, the world's largest chip foundry, will make a strategic announcement at Intel headquarters in Santa Clara. According to Intel (INTC) PR, the execs on hand will be Intel mobility chief Anand Chandrashekar and sales chief Sean Maloney, and TSMC (TSM) CEO Rick Tsai and sales chief Jason Chen.

What are they up to?

They're not saying – but it's not unusual for the two to cooperate. They've been known to work together on setting industry manufacturing standards. Two years ago they announced that TSMC would make WiMax chips for Intel. Intel has also been known to outsource the production of some chipsets and other items that don't require the very latest manufacturing processes. (The companies share more than WiMax chips; Chen ran sales for Intel before he joined TSMC four years ago.)

They're also competitors. TSMC makes chips for a bevy of Intel competitors including Nvidia (NVDA) and Qualcomm (QCOM).

Given that Chandrashekar and Maloney are attending for Intel, I'm guessing this announcement might focus on mobile and WiMax-type efforts. But considering the tough times in the chip industry – Gartner yesterday said it expects chip sales to plummet by up to a third in 2009 – lots of things could be on the table.

Whatever the deal is, it's probably something TSMC needs more desperately than Intel does. With its smaller chip customers swooning, one has to imagine Tsai might cut Intel a pretty sweet deal to get any business the chip giant would like to send his way. (NVDA) (AMD) (QCOM) (AAPL) (IBM)