SANTA CLARA, Calif. — Intel Corp. and S3 Inc. have announced a 10-year patent cross-licensing agreement, a move that clears the path for S3 to integrate core logic into its graphics-controller products.

"Virtually every desktop graphics manufacturer has a program in place to do an integrated chip set-graphics solution," said Dean McCarron, a principal of the research firm Mercury Research (Scottsdale, Ariz.). "If you're interested in the bottom of the mid-range [PC market] and below, it makes sense."

Such integration is a likely trend for makers of PC graphics controllers due to its potential cost savings, which is an important factor as PC prices continue to drop.

"Everybody knows Whitney is coming," said McCarron, referring to Intel's forthcoming chip set, which will support graphics and multimedia functions for Celeron-based machines. "To be competitive, you're going to need something similar."

By combining graphics with other logic functions, companies could cut back costs and board space, bringing sophisticated graphics to lower-end PCs or to cheaper devices such as set-top boxes and handheld computers.

S3 will be preparing a graphics chip that integrate core logic functions, but Rick Bergman, S3 director of marketing, declined to reveal other details, saying only, "It won't be long."

But in developing such a chip, access to Intel's P6-bus patents was a chief concern. The deal with Intel will allow S3 to manufacture its integrated chip set outside of Intel's circle of protected foundries, which in turn should help keep costs low, McCarron said. The move also "lends some legitimacy or credibility" to the chip set S3 ultimately develops, he said.

Intel officials characterize the agreement as a safeguard for overlapping product goals. "Both companies had patent portfolios that the other company was interested in," an Intel spokesman said. "It clears any unforeseen patent hurdles that may be in the way."

But Intel might also have tapped S3 for the patents of the former Exponential Technologies Inc., which auctioned off its portfolio after closing its doors last year.

"Both companies got what they wanted," McCarron said. "Intel doesn't say it, but I think they wanted access to the Exponential patents S3 bought," McCarron said.

Intel actually receives little of S3's graphics know-how, much of which involves silicon implementation of algorithms and is not patentable. It's possible that S3 might someday be open to sharing that technology, but for now, Intel "will have to develop graphics chips on their own," Bergman said.

As part of the deal, Intel has agreed to help S3 with validation of its chips' compatibility with the upcoming 4X version of the advanced graphics port (AGP). The deal is nonexclusive, and Intel is talking to other graphics vendors about helping their 4X efforts.

Intel also has agreed to purchase warrants to buy S3 shares. Details of the agreement, including Intel's warrants, were not disclosed.

The license is the latest in a series given out by Intel this month. Core-logic vendor Via Technologies Inc. was granted a license, making its wares legitimate in Intel's eyes, and Sandia National Laboratories recently was granted a royalty-free Pentium license. Timing of the deals was purely coincidental, both being the results of "long-term negotiations," the Intel spokesman said.

"We've said for a very long time that we're always willing to consider licensing in exchange for fair value," he said. "Would this be the last one? Probably not."