By Jon Fortt
December 4, 2009

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

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.

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