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Analysis: What's next after Intel-AMD settlement?

Posted: 16 Nov 2009 ?? ?Print Version ?Bookmark and Share

Keywords:Intel AMD settlement? microprocessor? processor? antitrust Intel?

It's as close to admission of fault as anyone is ever likely to extract from Intel Corp.

Intel's acceptance of a settlement deal with rival Advanced Micro Devices Inc., bolstered by antitrust rulings and other litigation against the chip giant around the world, including a pending lawsuit in the United States, finally delivered to AMD what it has always sought: an implicit admission by Intel it had not always played fair in the global chip market.

The world's largest chipmaker insisted it is not guilty of unfair trade practices. Still, by agreeing to pay $1.25 billion to AMD in an agreement announced Nov. 12, Intelwhether it settled only to avoid further litigations, as executives claimed, or because it was truly apologetic about its previous business practiceshas finally succumbed to years of pressure from its microprocessor rival and global regulators.

The agreement clears numerous obstacles faced by both companies. It gives Intel a chance to put some potentially damaging legal and public relations problems behind it while boosting AMD's coffers. It also frees AMD from the dead weight of a cost-intensive manufacturing operation, and ostensibly gives OEMs the freedom to design AMD microprocessors into their products.

However, even as an industry weary of legal squabbling celebrates the settlement, the deal does not completely exonerate Intel in the eyes of global regulators, nor does it alter the reality that AMD has slipped behind its competitor in MPU process technology.

AMD will no longer be able to blame Intel for many of its woes. Intel, on the other hand, will have to clean up its battered image, sincedespite its protestationsthe company emerges from this latest battle with the perception that it has caved because the evidence were tilting against it.

Why exactly did the Intel agree to pay AMD $1.25 billion in addition to consenting to "abide by a set of business practice provisions"? One good reason is that Intel has recently been getting a lot of heat from regulators all over the world along with a ton of negative publicity. An antitrust suit recently filed by the New York State attorney general is only the latest example.

The cumulative effect was to threaten further damage to Intel's image with PC and server vendors, not to mention consumers. As pressure mounted over the years, the company's overwhelming dominance of the market has been widely portrayed as less an advantage to customers and more of an impediment to competition.

In addition, the pending lawsuit with AMD in a Delaware court scheduled to start next year, combined with the need to prepare its defense of antitrust charges by the European Union, was beginning to eat into management time. Intel likely decided it could not afford these burdens as a weak global economy continues to hurt sales. The greater danger facing Intel, however, company executives admitted, was the specter of a jury ruling against the company, which could trigger massive punitive damages.

"It's a substantial settlement, which represents an acknowledgment by Intel that they were at serious risk of a finding against them," Michael Salinger, a former director of the Federal Trade Commission's bureau of economics, said in a statement.

Intel executives agreed. "The AMD antitrust case has been massive and threatened to become even more so as the court date approached," Intel CEO Paul Otellini, said during a conference call. "In court, damages are tripled, and this type of case can have huge losses. Most antitrust cases are settled out of court, not because the parties are guilty, but because the costs can be so huge. That's what happened here."

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