A lawsuit filed by New York prosecutors alleges that Intel, worried about the competitive threat posed by rival AMD, focused incentives and threats on Dell, which prosecutors say received about $6 billion in payments from Intel between 2002 and 2007. The money was used to keep Dell from launching products based on AMD's processors, according to the lawsuit. Intel officials say the payments were legitimate rebates paid to a large customer.
Faced with a growing threat from a new microprocessor design by rival
Advanced Micro Devices,
Intel used its size and deep pockets to pressure
systems makers into a difficult choice of meeting customer demand or taking
Intel's money, according to the lawsuit filed against the chip maker by federal
authorities in New York.
And no OEM benefited from the Intel
money more than Dell,
more than $6 billion between February 2002 and January 2007, states the
lawsuit, filed by N.Y. Attorney General Andrew Cuomo.
The 87-page antitrust
filed Nov. 4, accuses Intel of using a combination of financial
incentives and coercion to convince server and PC makers like Acer, Dell, IBM
and Hewlett-Packard to limit their purchases of AMD's
processors in favor of Intel's chips.
The suit is the latest legal challenge for Intel. Already regulators in Korea
and Japan have
ruled against Intel for anticompetitive practices, and earlier in 2009 the
European Union fined Intel $1.45 billion,
a fine that the chip maker is
In addition, Intel and AMD are locked in
a private lawsuit in Delaware
that is due to go to trial within the next six months, and the Federal Trade
Commission is looking into Intel's business practices.
Intel officials are defending the company by saying the rebates paid to OEMs
were legitimate measures. A spokesperson also questioned why Cuomo's office
would file the lawsuit when it goes over issues and evidence already being
presented in the AMD court proceedings and
to other regulators. The spokesperson also pointed out that during the past
decade processor innovation has flourished while system prices have dropped.
The suit has stirred a mixed reaction. The Computer & Communications
Industry Association, which has been critical of such companies as Intel and IBM
for what it says are anticompetitive practices, applauded the move. Others,
such as the Competitive Enterprise Institute, a Washington
think tank, called the lawsuit a "baseless attack against Intel" that
will lead to higher prices and stifled innovation.
According to the New York complaint,
Intel officials became nervous about AMD's
threat to its dominant position in the x86 chip market earlier this decade,
when AMD was developing what would become
its Opteron server chips and Athlon PC processors.
While Intel and HP were working on the new Itanium microarchitecture to
address 64-bit workloads, AMD was creating
an x86-based chip design that not only was backward-compatible with 32-bit
applications, but also featured an on-chip memory controller and greater energy
Intel officials saw that it would take a few years for Intel to catch up,
and turned to the company's monopoly position in the market to thwart the
threat from AMD, according to the complaint.
Referring to numerous e-mails from Intel, HP, Dell and IBM,
the lawsuit lays out a scenario in which Intel executives explicitly conveyed
to the OEMs that sticking with Intel
meant an influx of money from the chip maker and that buying too many AMD
chips would lead to retribution.
Though HP and IBM both adopted AMD
chips, their use was influenced by Intel's demands, according to the lawsuit. IBM
killed an AMD server product in return for
$130 million from Intel, and HP agreed to cap sales of AMD-based
PCs at 5 percent of its overall system sales.
Much of this came at a time when customers were asking vendors for AMD-based
systems, the suit states, putting the OEMs in a difficult position. In 2005, as
demand from customers grew, an IBM executive
reportedly said in an e-mail that Intel's negative reaction put IBM
in a quandary.
"I understand the point about the accounts wanting a full AMD
portfolio," the executive wrote. "The question is, can we afford to
accept the wrath of Intel...? It is a very hard question to deal with."
That question seemed most difficult for Dell, which waited until 2006 before
adopting AMD technology. Up until then, Dell
executives were vocal in their Intel-only
saying they were evaluating
all technologies but had not heard enough demand from customers to make the
According to the New York
suit, that hard-line stance netted Dell billions of dollars from Intel, even as
internal documents indicate that Dell officials saw AMD's
technology as superior to Intel's.
"Each time Dell considered altering the arrangement and introducing an AMD
line, however, Intel responded with both carrot and stick-increased payments
accompanied by threats of retaliation-which kept the relationship in
place," the suit states. "Moreover, as Intel's payments increased,
Dell became more and more dependent on Intel for its reported profits, further
locking in their agreement. ... In pure dollar terms, Dell was far and away the
leader in receiving Intel's largesse."
Most of the money was reportedly given to Dell under a program first called
MOAP-which stood for "Mother of all Programs"-then MCP, which stood
for "Meet Competition Payments." Under these programs, the amount of
money paid would be set, then paperwork created to legitimize the payments as
rebates, prosecutors allege. Dell also was given preferential treatment in
shipments of chips.
For two fiscal quarters in 2006, the payments from Intel exceeded the
profits Dell generated from its own business, according to the lawsuit, and in
2004 Dell requested payments of $100 million and, later, $400 million from
However, as early as 2004, when HP announced it was joining IBM
in selling AMD-based servers, Dell
executives worried that sticking exclusively with Intel would enable HP and IBM
to squeeze Dell on price with the AMD
servers and on performance with their RISC- and Itanium-based enterprise
systems, according to the suit. Those worries continued until 2006.
In an e-mail to Intel CEO Paul Otellini
in 2005, Dell CEO Michael Dell reportedly
wrote that because of the Intel-only policy, "we have lost the performance
leadership and it's seriously impacting our business in several areas."
Customers were increasingly strident in their desire for AMD-based
products from Dell, and some, like Rackspace Managed Hosting, were vocal
and public with their demands. By the time Dell announced in May 2006
that it was preparing AMD-based servers,
Rackspace already had moved
over to HP for its AMD servers.
According to the lawsuit, Intel retaliated by cutting the amount of money it
was sending to Dell. From February through April 2006, Intel had paid Dell
$800 million in rebates. From November 2006 to January 2007, that figure
reportedly dropped to less than $200 million.