Intel and Digital Equipment reached a sweeping settlement to end their acrimonious patent dispute, with Intel buying Digital's chip-making operations for $700 million (£465 million) in a deal seen as a victory for Digital. Intel will also make additional undisclosed payments to Digital over several years as part of a broad 10-year cross-licensing pact. One source close to the talks said the total sum of the settlement between the two is valued at more than $1.5 billion to Digital, but officials and executives at both companies would not comment.

"This agreement is a win-win for both companies and our customers," Digital chairman, Mr Robert Palmer said on a conference call with analysts and reporters.

"Digital and Intel have been doing business for more than two decades, and this agreement makes sure our positive relationship will continue in the future," Mr Palmer said.

Digital will sell its semiconductor operations, including three facilities, to Intel and it will retain its Alpha and Alpha-related semiconductor design teams to develop future versions of the microprocessor.

The companies were silent on any further financial specifics surrounding the deal, but said they expect the arrangement to be approved by US regulators within six months.

Analysts also said they believed the total deal was worth between $1.5 billion and $1.6 billion to Digital, including the undisclosed licensing payments Intel is making.

Digital will also be restored as a major Intel customer and entitled to receive discounts that large customers are due on its processors used by its PC business.

Digital sued Intel for patent infringement in May, alleging Intel was infringing on 10 Digital patents, in a move that shocked the computer industry.

Intel, the world's largest chip maker, followed with a lawsuit of its own, seeking that Digital return top-secret intellectual property documents that Digital had been privy to as an Intel partner. Digital is also a customer of Intel, buying its microprocessors.

Analysts called the deal a victory for Digital and said it validated their patent infringement claims against Intel.

"There was some validity (to Digital's case), or Intel would not have done this," Mr Drew Peck, a Cowen & Co analyst said. Mr Craig Barrett, Intel's president, said the company settled the suit to avoid long and costly litigation, and so that it could focus on its business again. Mr Barret said Intel was fully prepared to litigate the suit to the end.

"I was perfectly willing to focus on lawyers because I thought we had a fine IP (intellectual property) position," Mr Barrett said. "But at the highest level, we wanted to find a win-win situation," he said.

Under the settlement, Intel will acquire DEC's semiconductor manufacturing operations in Hudson, Massachusetts, and development plants in Austin, Texas, and Jerusalem, Israel. Intel will also offer jobs to the 2,000 Digital semiconductor workers.

The companies said they would seek a court-ordered stay of the litigation between them, pending US approval.