Intel to Pay AMD $1.25 Billion as Companies End Litigation War

Intel (INTC) and AMD on Thursday said they will settle all legal disputes, including antitrust litigation, for $1.25 billion. AMD CEO Dirk Meyer said the settlement ushers in a “new era” in the chip industry.

Under the terms of the settlement, Intel will pay AMD $1.25 billion. Among other key items (statement):

• AMD and Intel both get patent rights in a cross-licensing pact;
• Intel will give up any patent claims against AMD;
• Intel will agree to adhere to business practice provisions;
• And AMD drops all pending litigation against Intel.

Intel has been under fire from regulators in Europe over its alleged treatment of AMD.

The companies said in a joint statement that more details about the cross-licensing pact, a 5-year deal, and Intel’s business practice agreement will be revealed in filings with the Securities and Exchange Commission.

Other odds and ends worth noting:

• The agreement allows Globalfoundries, AMD’s spin-off of its manufacturing unit, to proceed as an independent company. Globalfoundries can now go forward without being an AMD subsidiary.
• The patent cross license will allow AMD to use multiple foundries.
• In prepared remarks, Meyer said in part:

Today marks the beginning of a new era… one that confirms that the game has changed for AMD. It is an important milestone for us, for our customers, our partners, and most important – for consumers and businesses worldwide. In addition, it represents the culmination many years of litigation and regulatory engagement. And we are optimistic that it will usher a new era for our industry.

We recognize that it will take time for people to understand how the operating conditions in processor business have changed – but make no mistake – they have changed. I would like to thank the regulatory agencies around the world for their diligence and consistency. Their work has enabled us to achieve this milestone. We are optimistic they will continue their vigilance in maintaining a fair playing field, especially with respect to pricing practices in our industry.

We look forward to healthy competition with the mutual respect one would expect between world-class competitors.

It remains to be seen if this settlement marks a new chip era, but the “healthy competition” Meyer refers to will determine AMD’s fate.

Intel said that it will take the $1.25 billion hit in the fourth quarter. Intel now expects spending in the quarter to be $4.2 billion, up from $2.9 billion. The company maintained its previous outlook, but did note that its tax rate will be 20 percent, down from 26 percent (statement).

Legal, corporate and public affairs EVP Tom McCoy made the following remarks during a conference call:

For us, this has never been about money. It’s about the marketplace. There’s no correleation between the settlement amount and anything in the EU.

Intel will not be able to condition doing business with them on not doing business with us. They can’t use inducements in order to force exclusive dealing, to delay customers from using our products, delaying or prohibiting a company that’s advertising our products, withholding benefits from companies that are using our products…Intel has no obligation to help us. They do have an obligation not simply to do things that are designed to hurt us.

With this agreement, we are trying to reset the relationship between AMD and Intel. That relationship has been intense, emotional and at times acrimonious for many years…all too many years. There was a touchstone principle of our negotiations that we’re going to be fierce competitors…we didn’t want pressures to build up and wanted to have a healthy, normal relationship. You will see in the agreement thought-out procedures that we will…resolve our differences before spilling into the courts and into the public affairs domain. We’ll see how it will go, but this is a start.

McCoy also noted that there are still a few kinks to be worked out between AMD and Intel, but ensured that the general agreement would open dialogue for such changes to be made through regulatory agencies.

McCoy said:

The key issue for us is the conditionality. Structures or inducements or the opposite of inducements that are provided to customers are conditional on whether and to what extent how customers can also deploy AMD technology. That is the key practice that has constrained our access to the marketplace, whether at the computer manufacturer level or the channel level.

President and CEO Dirk Meyer added the following:

The industry isn’t going to change like a light switch. The industry is an ecosystem…that’s been built up to think and operate a certain way over several years. It’s going to take a period of time for the market to operate in a particular fashion. Disagreement is a [start] to that.

CMO Nigel Dessau had this to say in a blog post:

AMD and Intel have today signed a historic ‘peace-treaty’. I use the phrase carefully because to some extent that is what it is.

Dessau also outlined business practices that prohibit Intel from:

• Offering inducements to customers in exchange for their agreement to buy all of their microprocessor needs from Intel, whether on a geographic, market segment, or any other basis (Section 2.1.1.a)
• Offering inducements to customers in exchange for their agreement to limit or delay their purchase of microprocessors from AMD, whether on a geographic, market segment, or any other basis (Section 2.1.1.b)
• Offering inducements to customers in exchange for their agreement to limit their engagement with AMD or their promotion or distribution of products containing AMD microprocessors, whether on a geographic, channel, market segment, or any other basis (Section 2.1.2a-b)
• Offering inducements to customers in exchange for their agreement to abstain from or delay their participation in AMD product launches, announcements, advertising, or other promotional activities (Section 2.1.2.b)
• Offering inducements to customers or others to delay or forebear in the development or release of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis (Section 2.2.2 and 2.1.2)
• Offering inducements to retailers or distributors to limit or delay their purchase or distribution of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis (Section 2.2.1)
• Withholding any benefit or threatening retaliation against anyone for their refusal to enter into a prohibited arrangement such as the ones listed above.

Here’s a look at some of the key chapters in the AMD-Intel legal war:

• EC: Intel ‘abused dominant position’ vs AMD; fined record $1.45 billion in antitrust case

• EC ramps up PR war with Intel (by publishing 518 page decision)
• EC reveals details of Intel antitrust breaches
• Intel: EC failed to meet ’standard of proof’ for $1.45 billion fine
• EU ombudsman slaps antitrust regulators over Intel case
• EU’s Intel ruling: Are there intangible benefits for AMD?
• AMD: Intel’s Otellini ‘doesn’t get’ his consumer disrespect, has ‘no remorse’
• AMD, Intel patent squabble intensifies

Comments

[principle:]

My question is does this new patent licensing mean AMD does not have to pay any royalties, which would be a huge win for AMD as well.

Nov 12 06:49 PM

[Libra:]

About the repeated anti-competition, bully behavior, just the settlement between the two companies isn't enough. Look forward to seeing punishments from the various time-consuming legal systems for the bully's REPEATED ANTI-COMPETITIVE BEHAVIOR. The bully did it once at 80386 generation in 80's in a different way and did it AGAIN REPEATEDLY IN A MUCH LARGER SCALE this time.
Around $6B of block payments paid to Dell, especially based on Dell’s quarter earning needs, to buy Dell out for Intel exclusivity, the two dirty CEOs, especially Intel, think they are above the law and untouchable, or THERE IS NO LAW OR GOVERNMENT AT ALL! Whether they broke the law or not, the time-consuming legal systems MAY decide.
May we have Intel representatives answer the following questions and educate us how rebates and kickbacks work:
Have they seen rebates or kickbacks from auto or cell phone companies conditioned with not buying at all or limited buying competitors' products?
Have they seen a consumer rebate conditioned with not buying at all or limited buying competitors' products?
All consumer rebates I have seen and have enjoyed just require the proof of purchase and the dated receipt.
Now Intel starts educating its employees how to write emails to each other to make it even more difficult to discover any dirty deals it may have in the future. Educating Intel’s and PC makers’ CEOs how to write emails to each other is particularly important!

About the competition from AMD that let us enjoy very high performance PC CPUs at low price, we need to thank not only AMD for their efforts, particularly the innovation of 64-bit x86 that the growth was constrained and limited by Intel’s dirty deals, buy also Abu Dhabi for their investment to keep AMD alive and being able to compete with the limited scale of economy.
The settlement is a win-win and is good for both company for moving forward and competing with better products. Intel eliminates the critical risk of going through the trial. AMD’s future is bright if it executes well because it now has the options of sourcing that it doesn’t have before, for example:
1. GF and TSMC for CPUs.
2. Chartered of GF and TSMC for GPU, GPU+CPU and chipsets. Chartered making money means GF making money and means AMD making money via the part of ownership of GF.

Some may ask why UMC isn’t mentioned. In my opinion, the #1 foundry of TSMC and its own Chartered (IBM technology based) of GF is enough. There is no reason for going to the 2nd-class UMC.

Nov 14 07:42 PM