Intel-AMD settlement a win-win-win
12 November, 2009
By Mark Cox |
Intel, AMD and the industry as a whole are all likely to benefit from the announcement of a comprehensive agreement to end all outstanding legal disputes between the companies, including antitrust litigation and patent cross license disputes.
Under terms of the agreement, AMD and Intel obtain patent rights from a new 5-year cross license agreement, Intel and AMD will give up any claims of breach from the previous license agreement, and Intel will pay AMD $1.25 billion. Intel has also agreed to abide by a set of business practice provisions. As a result, AMD will drop all pending litigation including the case in U.S. District Court in Delaware and two cases pending in Japan. AMD will also withdraw all of its regulatory complaints worldwide. The agreement will be made public in filings with the Securities and Exchange Commission.
"This is the beginning of new era, one in which the game has changed for AMD," said Dirk Meyer, AMD's President and CEO. "And make no mistake, the rules of the game have changed."
Meyer said that the new patent cross license agreement gives AMD broad rights. The deal also no longer requires Global Foundries, which AMD spun off earlier this year, to be structured as a subsidiary of AMD. While Meyer would not specifically comment on the timing or conditions of any change, he did indicate that Global Foundries would be moving to secure customers outside AMD.
"This agreement clearly gives ourselves and Global Foundries much more flexibility in terms of how Global Foundries is structured," Meyer said.
"This has never been about money, its been about the marketplace," said Tom McCoy, executive vice president, legal, corporate and public affairs of AMD. "What's important about the agreement to us is it signals a new era, it's a pivot from war to peace. It redefines the path to a fair and fierce competitive fight."
AMD, which has complained loudly for years that Intel has engaged in unfair business practices, said that the key to the deal for them is that Intel has agreed to desist from those practices. "Intel will not be able to condition doing business with them on not doing business with us," McCoy said. "They can't use inducements to force exclusive dealings, or withhold benefits from OEMs in the event they use AMD processors. That is the key thing that has constrained our access to the marketplace, and Intel has agreed to cease those practises."
"Intel has no obligation to help us, but they have an obligation not to do things that are simply designed to hurt us," McCoy added. "Customers will receive more freedom of action to choose."
Not surprisingly, Intel has a very different take on this part of the agreement.
"They believe we conduct business in ways that we don't believe we do, like punishing customers if they buy a certain amount from AMD," said Paul Otellini, Intel's President and CEO. "Discounting and rebates are standard business practices and are perfectly legal."
Otellini said that it makes sense for them to stipulate they don't do things that both Intel and AMD agree are wrong, but said that Intel doesn't do those practises, and hadn't done them in the past.
So why then, as one particularly persistent journalist kept restating on Intel's conference call announcing the agreement, give AMD $1.25 billion if Intel hadn't done anything wrong?
"We had to step back and looked whether spending all that time and money [in the courts] makes sense," Otellini said. "That's what Intel and AMD both did here. We found a way to put these matters behind us and moved forwards."
"Jury trials have their own vagaries, and damages from anti-trust trials are trebled, and while it pains me to write a check, at any time, it was a good compromise, and a small multiple of what could be awarded in a jury trial," Otellini added.
"We are trying to reset the relationship between AMD and Intel," AMD's McCoy said. "It has been intense and emotional and at times acrimonious for all too many years. So we laid down a procedure to settle future debates without spilling into the courts, and go forward in a very classy way."
Intel and AMD will try to establish quarterly meetings to discuss future bones of contention, with provisions for mediation steps, and arbitration steps and resolve them as business people rather than head to the courts. No discussions about pricing, which would be illegal, will be part of such meetings. The deal will involve no changes to the Intel Inside marketing program. Intel will pay AMD the $1.25 billion in cash within 30 days.
It is likely that the result of this deal will strengthen AMD, help Intel as well, and be good for the industry.
"It was the right thing to do for both companies," said Rob Enderle, principal analyst for the Enderle Group. "Several people would have been dead by the time this was settled in court. The court case hurt Intel's image and AMD needed the cash, so the settlement strengthens both companies. The end result is probably going to be a much better ecosystem."
Warren Shiau, Lead Analyst, IT Research,The Strategic Counsel, also thinks the industry could benefit from the deal.
"Things have already been going based on strength of product, design and price/performance for a while," Shiau said. " This could set us up for even faster price/performance gains, because if you eliminate the possibility of "back room" deals what things boil down to is actual "street" price. It might not have any significant impact, however, as the days when back room deals were more prevalent have passed.
"For AMD, $1.25B will go a long way toward shoring up the design/development budget, and that's good for competition too," Shiau added. |
