AMD: Intel Holds Chip Market Hostage

by Dan Burger

Nobody said life was going to be fair. But then, eventually, people or companies hit a break point and they exclaim: "I've had it up to here with you, and I'm not going to take it any more!" It's gotten to that point for chipmaker Advanced Micro Devices, which filed several lawsuits last month against its nemesis Intel. AMD says Intel has used "coercion and illegal payments" to manipulate the chip market and squelch free enterprise. Of course, there's much more being said as well.

For those who enjoy taking a peek into how deals might be getting made in the chip business, this opens the door to the proverbial smoke-filled back room. It's no surprise, based on the nature of such lawsuits, that AMD has quite a bit more to say about the "art" of deal making as it pertains to Intel and its alleged heavy-handed tactics.

The lawsuits mention no specific amount of monetary damages, preferring the amount to be set at trial. It does seek a court order prohibiting Intel from continuing business practices that violate federal and California law.

Hector Ruiz, chairman, CEO, and president of AMD, has unloaded on Intel, firing a barrage of charges aimed at what he sees as Intel's use of "illegal, monopolistic practices" to maintain its lion share of the market. In support of Ruiz's incendiary language, the AMD lawsuits (two filed in Japan and one in the United States) cite instances such as the exclusive deal mega PC-maker Dell has with Intel, which is based on "outright payments and favorable discriminatory pricing and service." According to the suit, Dell executives clearly understand and have conceded that they must "financially account for Intel retribution" if they negotiate with AMD.

In a description taken directly from the lawsuit, AMD claims: "Intel has forced major customers into exclusive or near-exclusive deals; it has conditioned rebates, allowances and market development funding on customers' agreement to severely limit or forego entirely purchases from AMD; it has established a system of discriminatory, retroactive, first-dollar rebates triggered by purchases at such high levels as to have the practical and intended effect of denying customers the freedom to purchase any significant volume of processors from AMD; it has threatened retaliation against customers introduc ing AMD computer platforms, particularly in strategic market segments; . . . [and] it has abused its market power by forcing on the industry technical standards and products which have as their central purpose the handicapping of AMD in the marketplace."

Practices involving "loyalty rebates" directly connected to purchasing requirements were noted to have forced companies such as Fujitsu, NEC, and Acer into partially exclusive agreements. One specific reference was made to NEC receiving a several million-dollar "rebate" in exchange for Intel retaining a minimum of 90 percent of NEC's business. AMD declares the use of rebates, allowances, and market-development funds combined to limit the purchase of AMD chips.

In another example cited by AMD, "Intel paid Sony multimillion dollar sums, disguised as discounts and promotional support, in exchange for absolute microprocessor exclusivity. Sony abruptly cancelled an AMD Mobile Athlon notebook model. Soon thereafter, it cancelled plans to release AMD Athlon desktop and notebook computers."

The lawsuit also makes note of former Compaq CEO Michael Capellas' complaint that Intel "held a gun to his head," and used slow server chip deliveries to influence a decision to curtail purchases of AMD chips. And, according to Gateway executives, Intel threatened to beat their company into "guacamole" if Gateway did not go along with the Intel game plan. IBM was the recipient of "millions of dollars in market development funds" paid by Intel as a result of its decision to drop negotiations with AMD, according to the AMD suit.

Intel has responded with a written statement in which it states: "We strongly disagree with AMD's complaints about the business practices of Intel and Intel's customers. Intel believes in competing fairly and believes consumers are benefiting from this vigorous competition." The statement goes on to chastise AMD for taking this legal step because of its inability to compete out in the marketplace. In its response, Intel suggests AMD is basically just a whiner. Its statement reads: "AMD has chosen, once again, to complain to a court about Intel's success, with a legal case full of excuses and speculation. Intel will respond appropriately to AMD's latest complaints and is committed to successfully resolving these issues in court."

Because antitrust suits take years before any type of resolution comes to pass, we can expect AMD to continue a campaign of talking trash about Intel for a long time to come. Other than its short statement, Intel is not returning fire, at least not at this point. That will probably change if AMD continues to hammer away in the press.

Intel controls 80 percent of the worldwide market for chips that run PCs and 90 percent of revenue. That grip on the market, AMD charges, allows Intel to compel "exclusive purchasing obligations on manufacturers of personal computers (OEMs) and retailers which have a substantially foreclosing effect on the market and using price discrimination and refusal to supply necessary components, new Intel products and product information to OEMs as retribution for buying AMD."

AMD also claims Intel has unfair arrangements with PC component manufacturers that prohibit AMD, and other competitors, from gaining the interface information necessary for designing and developing microprocessors. Additionally, a claim of misusing industry standards setting processes has also gained Intel an unfair market advantage that not only benefits Intel, but damages product advancements instigated by a more competitive environment.

AMD has received approval from the U.S. District Court in Delaware to petition companies (large-scale computer makers, small system builders, wholesale distributors, and retailers) subpoenaed in the AMD v. Intel lawsuit asking those firms to maintain their correspondence and other evidence relating to chip-purchasing decisions.

The list includes PC-makers Acer, Averatec, Dell, Fujitsu, Fujitsu Siemens, Gateway, Hewlett-Packard, Hitachi, IBM, Lenovo, NEC, NEC-CI, Rackable Systems, Sony, Sun Microsystems, Supermicro and Toshiba; distributors ASI, Avnet, Ingram, Supercom, Synnex, and Tech Data; and retailers including Aldi, Best Buy, Circuit City, CompUSA, Dixons, Fry's, MediaMarkt, Office Depot, and Vobis.