Intel pays NVIDIA $1.5 billion for five-year cross-license agreement

Looks like NVIDIA has won its battle against Intel as the companies signed a cross-license agreement and ended all outstanding legal disputes. Under the agreement, Intel will pay NVIDIA a total of $1.5 billion in five annual installments, beginning Jan. 18, 2011. The deal gives Intel access to NVIDIA's full range of patents, but NVIDIA will not be able to use Intel patents related to x86 processors, flash memory and certain chipsets for the Intel platform.

The news pushed NVIDIA's stock to $21.60 (+4.70%) in after-hours trading, representing a gain of roughly 40 percent since the first trading day of 2011. Following quarters of misfortune, NVIDIA is now once again trading at a level that it hasn't seen since mid-2008.

NVIDIA announced today that it has signed a new six-year cross-licensing agreement with Intel.

For the future use of NVIDIA's technology, Intel will pay NVIDIA an aggregate of $1.5 billion in licensing fees payable in five annual installments, beginning Jan. 18, 2011.

NVIDIA and Intel have also agreed to drop all outstanding legal disputes between them.

"This agreement signals a new era for NVIDIA," said Jen-Hsun Huang, NVIDIA's president and chief executive officer. "Our cross license with Intel reflects the substantial value of our visual and parallel computing technologies. It also underscores the importance of our inventions to the future of personal computing, as well as the expanding markets for mobile and cloud computing."

Under the new agreement, Intel will have continued access to NVIDIA's full range of patents. In return, NVIDIA will receive an aggregate of $1.5 billion in licensing fees, to be paid in annual installments, and retain use of Intel's patents, consistent with its existing six-year agreement with Intel. This excludes Intel's proprietary processors, flash memory and certain chipsets for the Intel platform.

The existing agreement is to expire March 31, 2011.

Pursuant to U.S. 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. Accordingly it is anticipated that this would amount annually to approximately $233 million of operating income and an increase in net income of $0.29 per diluted share, on a full year basis.