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Even for a company as powerful as Intel, with $13 billion in cash on the books, $1.25 billion is a lot of money. So why drop that huge quantity of money in the lap of its biggest rival, Advanced Micro Devices?

The payment is, of course, to settle the antitrust suit AMD brought against Intel five years ago. AMD's stock surged 22 percent Thursday after the chipmakers announced the agreement, but Intel's share price dropped 1 percent, indicating which company the investors thought got the better deal.

Paul Otellini, speaking in September and holding a wafer of silicon chips

(Credit: Stephen Shankland/CNET)

AMD does indeed come away with some serious perks--not just the cash, but also a new patent cross-license agreement that removes Intel's objections to AMD spinning off its chip-manufacturing business, enables multiple manufacturers to build AMD's chips, and eliminates the earlier patent agreement's payments to Intel. And it has Intel's agreement not to violate a list of restraints on its business practices.

But Intel gets something out of this, too.

Spend now, save later
Let's start with the money. Sure, shareholders likely frowned when they heard Intel's fourth-quarter expenses are expected to climb from $2.9 billion to about $4.2 billion. But Intel could have been out a lot more money if things had gone south.

In the European Union, Intel is wrestling with an antitrust case that produced a fine of 1.06 billion euros, or $1.6 billion at today's exchange rate. Intel appealed the European Commission fine, but it's a very concrete example of just how severe the Intel punishment could be.

There are other financial factors, too. Intel and AMD were set to begin their jury trial in March, and jury trials are famously unpredictable. Add on top of that risk the fact that antitrust suits can come with triple damages.

"It was a small multiple of the damage that could be awarded in a jury trial," Intel Chief Executive Paul Otellini said of the price tag in a conference call earlier Thursday.

Treble damages of the scale of just the European Commission fine would have been more than $4 billion, Technology Business Research analyst John Spooner observed. Facing that prospect, "Intel chose to control its own destiny and settle up front."

Taking commercial cases to a jury trial is indeed risky, said Richard Brosnick, who's involved in antitrust law at the firm of Butzel Long.

"Any complex commercial case going to the jury phase is challenging, and antitrust, given the economics, is probably more challenging," Brosnick said. "Trial is expensive overall, not in billions, but in terms of the risk you'll be able to explain these issues in a way that will be understood by and persuasive to a jury."

Goodwill in other antitrust cases
AMD's antitrust case isn't the only one Intel faces. It's also got the European Commission fine discussions, a new antitrust lawsuit from New York Attorney General Andrew Cuomo, and an antitrust investigation from the Federal Trade Commission.

The AMD settlement doesn't make those cases evaporate, but Intel hopes it'll help.

"We hope that having this major litigation settled with AMD would be viewed favorably by these regulatory bodies and eventually the cases would be dropped," Intel spokesman Tom Beerman said.

Certainly those regulators won't face as much of AMD's active prodding. Among the terms of the settlement is this, regarding all the regulatory actions AMD is involved in:

AMD agrees to promptly...notify in writing each authority...that except as provided in Section 3.5 AMD has resolved its disagreements with and complaints concerning Intel contained in that Administrative Complaint and believes that this Agreement provides AMD with fair compensation for any and all actual or alleged harm and damages that AMD did or may have suffered in connection with matters discussed in the Administrative Complaint. In addition, AMD agrees that it will not ghost-write or edit any other briefs, pleadings, or "friend of the court" or "friend of the tribunal" materials or briefs in any Administrative Action.

But whether Intel will actually get what it wants isn't certain.

"It's certainly possible that the public agencies will view this as a compromise they can live with, but it's equally possible not," Brosnick said.

One issue is Intel practices described in the section 3.5 mentioned above, where AMD and Intel still disagree. Brosnick said the governmental agencies still might be concerned about any of those practices--called "retroactive discounts," "accused bid bucket," and "accused end-user discounts" in the settlement.

Intel digging in its heels?
Though the agreement didn't preclude those practices as it did some others, it did agree not to defend them as hard as it might in settlement talks with the government organizations.

"Intel agrees that in the event it enters into voluntary settlement discussions with a government authority in the EC litigation, New York litigation, or the FTC investigation, and if such government authority proposes to include in a consent judgment or other governmental order a prohibition against Retroactive Discounts, Accused Bid Buckets or Accused End-User Discounts, Intel will not challenge such a prohibition as a general matter, although it may challenge the scope or specific language of the prohibition," the settlement agreement said.

Just how deeply Intel will dig in its heels in the other cases remains to be seen. Although it settled a big case, Otellini hardly sounded contrite. He reiterated on several occasions his belief that Intel didn't do anything illegal. He said airing the full context of seemingly incriminating e-mail would show Intel in a better light. And he vehemently attacked the New York case.

"We strongly disagree with the New York attorney general case and believe the complaint is entirely without merit," Otellini said. "Discounts and rebates are entirely fair business practices, and it's unfortunate the New York attorney general chose to distort the facts. We would have preferred to engage in a dialog with the New York attorney general."

Then again, Intel spoke in strong terms about the AMD trial. Perhaps Intel's pragmatic side will show in the other cases next.

Experts say Intel has been instrumental in driving down PC prices, one of the key indicators of competition and one charge New York's Attorney General cannot easily level against Intel in its antitrust lawsuit.

New York Attorney General Andrew M. Cuomo on Wednesday filed a federal lawsuit against Intel accusing it of paying computer makers rebates to illegally maintain its monopoly power and preventing AMD from gaining business with PC makers.

One of the operative charges in the complaint centers on prices. "Intel launched an illegal campaign to deprive AMD of distribution channels and consumers of product choice and lower prices," the complaint alleges.

Not so fast, say some experts. "Prices are falling, buyers are not complaining about Intel's loyalty discounts, and the lower prices produce obvious and immediate benefit for consumers," said Joshua D. Wright, professor at George Mason University School of Law, and a scholar in residence at the Federal Trade Commission until 2008.

"Given the intuitive and easy to grasp nature of the consumer benefits of discounting contracts in the Intel case, I suspect that judges will be less likely to condemn these practices without real proof of actual consumer harm. I'm skeptical that AMD, (New York), or the (Federal Trade Commission) will be able to produce that here," Wright said.

And prices continue to fall. One of the most recent examples of steep downward PC price pressure is ... Read more

Nvidia CEO Jen-Hsun Huang seemed unsurprised by allegations made Wednesday by New York's attorney general that Intel has illegally tried to maintain its monopoly.

Nvidia CEO Jen-Hsun Huang.

(Credit: Nvidia)

"Where there's smoke there's probably fire. It blows my mind that's it's taken this long," Huang said in an interview Thursday, just after the graphics chipmaker posted solid fourth-quarter earnings. Nvidia competes with Intel in the PC graphics chip market.

"Even bribes and kickbacks can't stop somebody from buying our graphics processors," he said, referring to the allegations made in the lawsuit.

When contacted, Intel had no comment.

"Tactics good for AMD are tactics good for Nvidia," he added. "We have far superior products to Intel, that's how we survive by innovating far ahead of (Intel)."

Nvidia is locked in a legal battle with Intel, preventing Nvidia from making chipsets for Intel's "Nehalem" Core i series of chips--the lastest and greatest line of processors from Intel. Nvidia's Ion chipset--used in Apple MacBooks and Hewlett-Packard Netbooks, for example--has been very successful.

Huang also commented on the wave of next-generation tablets and media pads expected to hit the market next year, such as the rumored Apple tablet. Nvidia is already working with device makers who will use its Tegra chip in these designs next year.

"I think that's going to be the next big form factor," he said. "More and more people that use the iPhone would like to have a bigger iPhone. And the fact that 4g is coming--20 megabits per second. What can't you do. I think this (market) space is about to go nuts," he said.

"I really think we're on the cusp of our second personal computer revolution," he said.

An antitrust lawsuit filed Wednesday by the New York attorney general alleges a longstanding symbiotic relationship between Intel and Dell.

New York Attorney General Andrew M. Cuomo filed the federal lawsuit against Intel accusing it of paying computer makers rebates to illegally maintain its monopoly power and preventing AMD from gaining business with PC makers.

In a similar case earlier this year, the European Commission fined Intel $1.45 billion, alleging illegal rebates to PC makers such as Dell and Hewlett-Packard. AMD also made analogous allegations in its case filed against Intel in June 2005 that is slated to come to trial in March 2010.

And this may not be the last major case filed against Intel that makes these allegations. The Federal Trade Commission is also expected bring charges against Intel, according to reports.

"It is the AMD case filed 4.5 years ago. It's the same case the EU brought. There's nothing significant or new here that hasn't been discovered," Intel spokesperson Chuck Mulloy said about Wednesday's complaint filed by the New York Attorney General. "Neither consumers--who have consistently benefited from lower prices and increased innovation--nor justice are being served by the decision to file this case now," Mulloy said.

Doling to Dell
The complaint singles out Dell as a large recipient of Intel's "largesse," echoing the 2005 AMD lawsuit. Quoting often graphic exchanges between Intel and Dell executives, the suit alleges that Intel gave Dell massive rebates totaling in the billions of dollars over a period of, at least, several years. Hewlett-Packard and IBM, among others, are also cited in the complaint, but Dell is the focus of some of the most egregious Intel behavior, as alleged by the attorney general.

"We use both Intel and AMD chips and we do provide customer choice," Dell spokesman David Frink said Wednesday. Dell used Intel processors exclusively until May of 2006, when it adopted AMD chips for the first time.

"In pure dollar terms, Dell was far and away the leader in receiving Intel's ... Read more

New York Attorney General Andrew M. Cuomo filed a federal antitrust lawsuit Wednesday against Intel that accuses it of paying computer makers rebates to illegally maintain its monopoly power, the newest among several such attacks that have dogged the chipmaker in recent years.

"Intel has engaged in a systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors," the suit asserts. "By exacting exclusive or near-exclusive agreements from large computer makers in exchange for payments totaling billions of dollars, and threatening retaliation against any company that did not heed its wishes, Intel robbed its competitors of the opportunity to challenge Intel's dominance in key segments of the market. This illegal behavior was highly detrimental to consumers, competition, and innovation."

The suit "seeks to bar further anticompetitive acts by Intel, restore lost competition, recover monetary damages suffered by New York governmental entities and consumers, and collect penalties," Cuomo said in a statement.

The suit (click for PDF) makes the state the newest party to go after the dominant chipmaker. Intel also is in the midst of an antitrust suit brought by top rival AMD in 2005 and appealing a massive $1.5 billion fine from the European Commission from a later case in the European Union.

New York Attorney General Andrew M. Cuomo

(Credit: New York Office of the Attorney General)

Intel will defend itself, Intel spokesman Chuck Mulloy said in response to the New York suit.

"We disagree with the New York attorney general. Neither consumers--who have consistently benefited from lower prices and increased innovation--nor justice are being served by the decision to file this case now," Mulloy said.

Of e-mails the attorney general quoted as evidence Intel abused its position, all already emerged in earlier cases, he added. "It is the AMD case filed 4.5 years ago. It's the same case the EU brought. There's nothing significant or new here that hasn't been discovered," Mulloy said.

According to the suit, computer makers "frequently decided, when faced with the array of incentives and threats which Intel brought to bear, to collaborate with Intel in restricting their purchases from AMD."

"In a February 27, 2003 internal Dell document, for example, it was assumed that 'aggressive' purchases by Dell from AMD could result in '(r)etaliatory (rebate) reductions (by Intel that) could be severe and prolonged with impact to all LOBs (lines of business),'" the suit said. "Another Dell document from March 2003 concluded that '(a)nticipated Intel response wipes out all potential opinc (operating income) upside from going with AMD.'"

And an unnamed IBM executive said in a 2005 e-mail that balancing business interests against Intel's response was hard. From the suit:

I understand the point about the accounts wanting a full AMD portfolio. The question is can we afford to accept the wrath of Intel if we do the AMD full portfolio? It is a very hard question to deal with. On the one hand, having Intel help us has been one element of why we are doing better in the market. If they start to sell against us again I am afraid that we would be in a very difficult spot. On the other hand, if we leave Sun and HP an opening with AMD we will (be) very exposed on that side of things.

Cuomo's office said it began investigating the case in January 2008, "reviewed millions of pages of documents and e-mails and took testimony from several dozen witnesses."

Updated 9:43 a.m. PST with further details from the lawsuit.

Advanced Micro Devices chip plant spin-off rumors won't die. Probably because they may be partially--or more than partially--true.

AMD Dresden facility to be spun off?

(Credit: AMD)

But the timing is the big unknown. AMD claims the launch of its so-called Asset Smart strategy is not imminent.

The latest rumor was triggered by a blog at the Austin American Statesman that said AMD may "spin-off of its manufacturing operations within two weeks." The blog cites a Wall Street securities analyst, John Lau with Jefferies & Co.

AMD said that's not so. "We hope to get it done by the end of the year. There's been no change on our end," said Drew Prairie, an AMD spokesman.

"I wouldn't expect an urgent phone call from me in the next two weeks," he said, implying that the timing would not be in this time frame.

AMD has two chip factories in Dresden, Germany, that are at the center of the spin-off speculation.

Prairie also cautioned that speculation about the structuring of the spin-off may not be accurate. "I wouldn't take that assumption from (analysts) as definitive. There's a lot of nuances and gray areas, as to what we're going to be doing. A lot the speculation is painting things as black and white. I don't think, come announcement day, it will be that black and white."

He also reiterated that the proposed chip plant in upstate New York "would be a critical part of our manufacturing."

Analysts have also speculated that AMD may receive funding along the lines of the $622 million investment AMD received from Mubadala Development Co., the investment arm of the Abu Dhabi government.

IBM may play a small role in the Asset Smart strategy also. Currently, AMD and IBM do joint research and development on next-generation chip technology in a location close to the proposed AMD chip facility in Malta, N.Y.

Update at 2:15 p.m. PDT: Adds comments from AMD spokesperson.

Advanced Micro Devices is in a bind. The chipmaker is caught between the dire need to reduce manufacturing capacity on its books with pressure to build a $3 billion plant in New York state.

AMD's chairman Hector Ruiz is touring the Malta, New York site this week-- referred to as the Luther Forest Technology Campus--as Saratoga County installs a $79 million water pipeline that will service the facility. Moreover, this week, the town of Malta voted unanimously to approve plans for the plant, according to the The Saratogian, a Saratoga Springs, NY-based newspaper.

AMD need only say "I do"--a green light from AMD would seal the deal and release $1.2 billion in state incentives.

Concept of AMD New York state plant

(Credit: AMD)

If it was only that easy. Back in the halcyon days of 2006 when AMD was basking in its status as the smarter, better chipmaker (having humbled Intel with its superior Opteron processors), a headline in the Timesunion proclaimed: "AMD chip plant deal was years in the making." It sounded like nothing less than a foregone conclusion that AMD had committed to building the facility.

And as recently as March 2008, the Daily Gazette of Schenectady, NY quoted U.S. Sen. Charles Schumer as saying that there was "no doubt in his mind" that AMD will "commit to a project to build a chip fabrication plant" in Malta.

Then, the report added: "Although he said he couldn't guarantee it."

Ay, there's the rub. What the report didn't say is that AMD is now in the midst of a major restructuring as it reels from a string of quarterly losses ($1.2 billion in the second quarter) and is shedding assets as quickly as it can. AMD sold its digital TV business to Broadcom this week after saying back in July it would get out of the handheld chip business too.

Reports also seem to be skirting the fact that AMD never completely committed to the plant. "It was such big news for the region. It got built up a little bit and people made a natural assumption that this means that we're building a new fab," said Travis Bullard, an AMD spokesperson. "When in reality all that was really announced (in 2006) was that we had this option to build a fab."

Enter Asset Smart--AMD's plan to rejigger manufacturing assets on its books so it can go forward with the Malta facility (among other commitments). "This is about their books and their finances more than their operations," said Dean McCarron, principal and founder of Cave Creek, Arizona-based Mercury Research. "It's about getting rid of the capital requirements for manufacturing."

"When the New York deal was done (in 2006) AMD was well on its way to ascendancy in terms of market share," McCarron said. "The belief was that two current-generation fabs would be necessary to satisfy full demand. If they got to the 30 percent goal (share of the x86-architecture chip market). But they're not at the goal, they're roughly in the 20 percent range."

So, how will AMD reconcile the countervailing forces of shedding manufacturing assets and building another $3 billion plant? One theory is that they get one of the sovereign wealth funds like Abu Dhabi to build a factory for them, said McCarron. In November of last year, AMD received $622 million in funding from Mubadala Development Co., the investment arm of the Abu Dhabi government.

But it is tricky because AMD would likely have to retain majority ownership. "There may be some issues with AMD having to retain controlling ownership. In order to be OK with patent licensing agreement with Intel," McCarron said. "Probably end up with some entity that's halfway between AMD and some other concern with a very interestingly structured contract built around it."

Depending on how this shakes out, "it doesn't preclude New York from happening," McCarron said. It would have to involve in some way another large player because "the whole reason for Asset Smart was that the fabs that they owned were a drag on their finances. Add another (plant) on top of that...that would not be the most prudent thing," McCarron added.

AMD thinks Asset Smart is a prudent move. "The option to build the fab in upstate New York is going to be a piece of the Asset Smart strategy," AMD's Bullard said. "We need to announce the Asset Smart strategy first and get all those pieces locked into place first. And then we'll be in a position to announce what we'll do with (the Malta) Fab 4X."

AMD's main manufacturing facilities are currently in Dresden, Germany.