"For the future use of NVidia's technology, Intel will pay NVidia an aggregate of $1.5 billion in licensing fee payable in five annual installments, beginning January 18, 2011," Nvidia said in a statement.
NVidia and Intel have also agreed to drop all outstanding legal disputes between them, it added. The dispute between the two companies was due to the terms of a 2004 agreement, under which Intel granted NVidia access to some of its technology for use in its chipsets.
Intel sued NVidia in February 2009, alleging that the latter should pay for a new licence to make chipsets that were compatible with Intel's latest processors. NVidia countersued claiming the 2004 licence with Intel covered those microprocessors.
"This agreement signals a new era for NVidia. Our cross-licence with Intel reflects the substantial value of our visual and parallel computing technologies," NVidia President and CEO Jen-Hsun Huang said.
It also underscores the importance of NVidia's inventions to the future of personal computing and expanding markets for mobile and cloud computing, he added. Under the new agreement, Intel will have continued access to NVidia's full range of patents.
In return, NVidia will receive $1.5 billion in licensing fees and retain use of Intel's patents, excluding Intel's proprietary processors, flash memory and certain chipsets for the Intel platform.
The existing agreement is to expire March 31, 2011. Pursuant to US GAAP, a portion of the proceeds will be accounted for and attributed to the settlement of prior legal claims.
This amount, which NVidia anticipates to be less than $100 million, will be included in the company's fourth-quarter results.
The balance of the licensing fees will be accounted for on a straight-line basis over the six-year term of the agreement.
The licensing fee is anticipated to amount annually to about $233 million of operating income and an increase in net income of $0.29 per diluted share, on a full year basis.
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