Nvidia and Intel have signed a multi-year cross-licensing agreement that entitles Nvidia to build chipsets for Intel's processors.

Under the agreement, Nvidia will receive a licence to build chipsets using Intel's front-side bus design, and Intel will have a licence to Nvidia's patents for high-end graphics technology. Financial terms of the agreement were not disclosed.

Intel's PC customers now have the option to build systems with Nvidia's nForce chipset as a result of the agreement, said Chuck Mulloy, an Intel spokesman. Nvidia's first chipsets for Intel processors are expected between February and April of 2005, an Nvidia spokeswoman said.

Although the headquarters of both chip companies are just a few miles apart in Santa Clara, California, prior to Friday's agreement Nvidia and Intel had not worked together on chipsets since the days of Intel's Pentium III processors. Nvidia primarily makes graphics processors for PCs, but it is also one of the largest vendors of chipsets for AMD's Athlon 64 processors. It also built the chipset for Microsoft XBox gaming console, which uses an Intel Pentium III processor.

Intel's chips use a front-side bus to connect the processor to the memory. This means the complexity of the processor-memory interface is built into the chipset, not the chip itself. AMD's newest chips have an integrated memory controller that places that component directly on the processor.

Companies that wish to build chipsets for Intel's processors must acquire a licence to build the front-side bus interface. Via, ATI and Silicon Integrated Systems (SIS) also make chipsets for Intel's products, but Intel itself is the largest vendor of chipsets for its products, said Kevin Krewell, editor in chief of the Microprocessor Report.

Intel holds about 70 percent of the market for chipsets based on its processors. Nvidia will now compete for the remaining 30 percent with ATI, Via, and SIS.

Nvidia has done fairly well selling chipsets for AMD's products, but it is starting to face more competition from Via and probably felt it needed another market in which to sell its chipset technology, Krewell said.

Intel has focused on integrating graphics technology into its chipsets in recent years, starting off with low-end graphics products and gradually increasing the sophistication of that technology. It has also started to emphasise platforms of processors, chipsets, and other technology rather than just focusing on processor performance alone, as shown by the success of its Centrino strategy.

As Intel starts to build chipsets with high-end graphics technology, it would inevitably start bumping into patents held by Nvidia for powerful graphics processing technology, Krewell said. The cross-licensing agreement gives Intel the flexibility to expand its reach into the higher end of the market without worrying about patent lawsuits, he said.