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AMD Pushes Back at Intel Rebates to Tablet OEMs

CEO Rory Read says Intel has a "different philosophy" and that he disagrees with the strategy around "contra revenues."

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Intel executives spent much of their conference call with analysts and journalists April 15 talking about their strategy around "contra revenues"—the rebates the chip maker is giving tablet manufacturers as incentives to build devices powered by Intel silicon.

Two days later, officials with Advanced Micro Devices briefly touched on Intel's efforts, but made it known they disagree with the strategy.

"We have a competitor that's really taking a different approach in terms of revenue management, and they have a different philosophy on profitability sometimes," AMD CEO Rory Read said during a similar conference call April 17 to talk about the company's first-quarter financial numbers. "The idea of contra revenue is a foreign idea to us."

Intel is continuing its aggressive push into a mobile chip space dominated by ARM and its manufacturing partners. CEO Brian Krzanich has said the company's goal is to have 40 million Intel-powered tablets ship in 2014. Last year, 10 million such tablets shipped, and already in the first quarter this year, 5 million were sold. Intel officials are willing to offer rebates and sacrifice revenues in 2014 to gain market share in the highly competitive tablet market.

Forty million Intel-based tablets would get the company into the 15- to 20-percent range in the tablet market. Krzanich said during the Intel call that the chip maker will "get out of this contra revenue in 2015."

Intel Executive Vice President and CFO Stacy Smith said the company is leveraging its 22-nanometer Atom "Bay Trail" architecture not only for PCs but also for tablets. At the same time, the company later this year is planning to launch 14nm "Cherry Trail" systems-on-a-chip (SoCs) for tablets. However, the Bay Trail SoCs include a higher bill of materials for such components as the power management subsystem, memory and the motherboard it goes on, Smith said.

"So we're providing some contra revenue to offset that bill of material delta over the course of 2014," he said, adding, "We're doing value engineering with our customers and our partners [to bring down] that bill of material over the course of 2014 independent of any changes to our SOC."

AMD and Intel in the past have quarreled over such issues as rebates to OEMs. AMD in the mid-2000s sued Intel, arguing that the company was using its dominant position in PC chips to persuade system makers—through such efforts as rebates—to limit the amount of AMD products in their PCs. The two sides settled the legal dispute in 2009, with Intel forking over $1.25 billion to AMD, though officials denied any wrongdoing.