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Ultimately, it was in the best interest of both Advanced Micro Devices and Intel to end their long and contentious legal dispute.
After eight years of court battles and seven months of negotiations, the two rival chip makers reached a deal Nov. 12 to settle the antitrust claims AMD had leveled against Intel, and Intel’s charges that AMD had breached the companies’ cross-licensing agreement when it spun off its manufacturing business to create Globalfoundries.
The two companies had spent millions of dollars in court costs, generated 200 million pages of evidence and conducted 2,200 depositions, and were still five months away from reaching trial.
The 10-year settlement includes a $1.25 billion payment by Intel to AMD and an agreement regarding anticompetitive business practices that cannot be used.
And it means AMD can free itself from having Globalfoundries as a subsidiary, and enables AMD to use Globalfoundries or any other manufacturing company without fear of violating a new five-year cross-licensing agreement with Intel.
AMD unveils road maps for its server and PC chips. Click here to read more.
On a larger scale, the industry now can benefit from having two of its key players be less distracted by court battles and more focused on innovation and developing products, according to analysts.
“It’s really good for the industry in general,” said Roger Kay, an analyst with Endpoint Technologies Associates. “Both companies had devoted a lot of top management to the fight. It’s pretty distracting. You really want top executives concentrating on the business at hand.”
Top executives for the two companies said they saw the settlement as positive, although for vastly different reasons. AMD CEO Dirk Meyer and Tom McCoy, AMD executive vice president for legal, corporate and public affairs, said the deal means a freer and fairer market in which AMD can sell its wares.
“This has never been about money,” McCoy said in a conference call with reporters and analysts. “It’s a pivot from war to peace. We’re trying to [create a] path to fair and fierce competition in the marketplace.”
The settlement also gives AMD much-needed money as it looks to pay down debt and stabilize its financial picture.
For Intel, it made sense to settle the dispute rather than take its chances with a judge or jury trial, where the company risked triple damages if found guilty. Intel CEO Paul Otellini stressed that despite the settlement and the payment, Intel was not saying that AMD’s claims were legitimate.
“Throughout this process, we have not waivered in our contention that Intel has acted within the boundaries of the law,” Otellini said, noting that in the United States, 98 percent of all antitrust cases are settled before reaching trial. “Antitrust cases are incredibly complex and … a jury trial has its own vagaries. While it pains me to write a check at any time, in this case, I think we made a practical settlement.”
Forbidden Business Practices
AMD officials have contended that Intel illegally used conditional rebates and coercion to convince OEMs, including Dell, Hewlett-Packard and IBM, to limit their use of AMD products. In addition to specifying the payment Intel will make, the deal lays out a number of business practices that Intel has agreed not to conduct, including conditional rebates.
It also sets up a dispute resolution policy-which includes quarterly meetings among executives, and mediation and arbitration steps-with the aim of keeping future disagreements out of the courts.
“If they can settle their differences on the playground rather than in the principal’s office, everyone will be better off,” said Clay Ryder, an analyst with the Sageza Group. “It’s an infinitely better approach than spending time in the courtroom.”
Regarding the list of business practices that won’t be allowed, Otellini said Intel agreed because it had never practiced illegal behavior.
“From our side, we won’t do these things, we haven’t done these things, so from that point of view, nothing really changes,” he said.
However, Endpoint’s Kay said Intel has been known to use its money and market dominance for years to influence OEM purchases, and recent e-mails from officials at Intel and OEMs that have been made public in a lawsuit filed in November by the N.Y. Attorney General’s Office illustrate this. In one, Dell CEO Michael Dell complained to Otellini that not using AMD processors in exchange for Intel payments had put Dell at a competitive disadvantage.
“Despite what Otellini said on the call [with reporters and analysts], these e-mails from Michael Dell were pretty damaging,” Kay said, adding facetiously: “The behavior that Intel hasn’t been practicing … they haven’t been practicing it for more than a decade.”
John Spooner, an analyst with Technology Business Research, said the settlement gives OEMs some breathing room.
“It essentially eliminates the fear factor, whether or not it was really happening,” Spooner said. “There was a fear … that if they used too much AMD [technology], [they risked] retribution. This gives HP and the others the ability to use whatever they want to put into their products.”
That’s good news for AMD officials, who clearly believe that they were denied market share due to Intel’s practices. However, it also could result in a segmentation of the market, at least in the booming notebook space, Spooner said. Right now, Intel has a competitive edge over AMD in the notebook market, and systems makers may drive AMD products down into the lower end of the market. That will be less likely in the server space, where AMD’s products are competitive with Intel’s.
Future Directions for Intel
For Intel, the settlement with AMD means it can focus on areas where it sees its greatest growth potential, outside of the traditional PC and server markets, analysts said. Intel has made no secret of its desires to expand in such areas as netbooks, consumer electronics, handheld devices and graphics.
“In five years, 98 percent of Intel’s revenues won’t be coming from server and PC processors,” Spooner said.
Jack Gold, an analyst with J. Gold Associates, said Intel’s biggest concern these days is not AMD, but ARM and its various licensees-including Qualcomm, Texas Instruments and Freescale Semiconductor-that dominate the mobile space.
“While PC and server chips are its breadwinner today, Intel rightly understands that the sheer number of personal and consumer intelligent computing devices that will be built over the next several years will far outnumber the traditional PC marketplace,” Gold wrote in a report. “These devices-smartphones, netbooks, Mobile Internet Devices, home entertainment, smart appliances, personal entertainment, smart power devices, smart autos, and on and on infinitum … all connected to the Internet-are not currently the domain of Intel and its x86 architecture.”
This poses a risk to Intel, which is why the vendor is spending so much money and effort on its Atom platform, Gold said.
Still, before Intel moves too far into the future, it needs to deal with other legal issues surrounding its business practices. Intel is appealing a $1.45 billion fine levied by the European Commission in May, and now has to deal with the New York lawsuit.
The settlement also may have allowed Intel to dodge another complaint that analysts had been expecting from the Federal Trade Commission.
Otellini said he was hopeful the AMD settlement would “bring some comfort to regulators.” Endpoint’s Kay said the established cases, such as the one out of Europe, would probably have to run their course. As far as the newer ones, such as the New York lawsuit, they may go away pretty quickly now that the AMD deal is in hand, he said.
There still are a few lingering issues to be worked out around pricing, both companies said.
The deal also ensures a relatively healthy AMD, which Intel needs to fight off further claims of a processor monopoly.
The Computer and Communications Industry Association, which has been a vocal critic of Intel’s business practices, applauded the deal.
“While there is unfortunately no explicit admission of wrongdoing by Intel, perhaps understandably in view of its continuing legal challenges, the facts that have been made public and the size of the settlement [leave] little doubt about culpability,” Ed Black, president and CEO of CCIA, said in a statement. “We nevertheless hope this settlement signals a firm commitment from Intel to stay focused and to compete on the merits of their products, not their power in the marketplace.”