Nanotech - The Circuits Blog

An Advanced Micro Devices executive claims that Intel and Apple cut a deal in 2005 that made Intel an exclusive supplier of processors to Apple, preventing AMD from gaining Apple business.

No AMD CPUs are currently used in Apple computers.

(Credit: Apple)

The claim, made in a phone interview with Tom McCoy, AMD's senior vice president of legal affairs, earlier this week, holds that Intel has had a longstanding deal to be Apple's sole supplier of microprocessors. To date, Apple has not used an AMD central processing unit (CPU) in any of its products. Currently, only Intel CPUs populate Apple's laptop, desktop, and server lineups.

This assertion by AMD comes in the wake of the EU decision last week to fine Intel $1.45 billion for violating antitrust legislation. Last week's EU decision centered on whether Intel used illegal tactics to deny processor business to AMD at PC makers.

McCoy said that a deal was struck when Apple moved from the PowerPC (IBM-Motorola) chip architecture to the x86 (Intel-AMD) architecture. The transition was announced by Steve Jobs at the Worldwide Developers Conference in 2005.

"They made a deal when they were porting over from PowerPC to x86 as to how much Intel was willing to pay for that port. My guess is that Intel asked for and won exclusivity in return for the help that they gave Apple to port," McCoy said.

McCoy continued: "That deal will not be exclusive forever and when that exclusivity is over, I'm sure they (Apple) will choose on the merits. We'll have a chance to compete for Apple's business when Apple is ready," he said. Intel denies this allegation.

Though McCoy did not make any direct charge of illegal activity regarding such a deal, the assertion is not that far removed from charges made in the July 2005 AMD complaint against Intel. AMD, in that filing, cited Dell, among other examples of exclusive Intel deals with PC makers. "In its history, Dell has not purchased a single AMD x86 microprocessor despite acknowledging Intel shortcomings and customer clamor for AMD solutions, principally in the server sector...Dell has been and remains Intel-exclusive. According to industry reports, Intel has bought Dell's exclusivity with outright payments and favorable discriminatory pricing and service." (Note: Dell, in 2005, offered no AMD-based products, though it does today.)

Whether the deal is exclusive doesn't in itself constitute a legal argument, according to Joshua D. Wright of the George Mason University School of Law, who has written about the EU decision in a blog, "Truth on the Market." "Under Section 2 of the Sherman Act, a plaintiff must show that the exclusive dealing arrangement harmed competition in the form of higher prices, lower output, or reduced innovation," Wright said, responding to an e-mail query.

Following the European Union's decision to fine Intel for "illegal" business practices, Nvidia is crying foul too, according to a report.

Nvidia CEO Jen-Hsun Huang said Intel's chip pricing is unfair but added that the graphics chipmaker will not seek antitrust action against Intel, according to a Reuter's report.

This is a beef that Nvidia has had with Intel ever since Nvidia's Ion graphics chipset debuted last year. The competitive backdrop is Intel's longstanding vision of a CPU-centric universe versus Nvidia's creed that graphics processing matters more and more in a multimedia-intensive world.

Inside every Acer, Asus, Hewlett-Packard, and Dell Netbook beats an Intel silicon core. Intel supplies both the central processing unit (CPU) and graphics processing unit (GPU)--the latter in the form of the Intel integrated Graphics Media Accelerator.

Nvidia wants in. It maintains that Intel-only Netbooks don't deliver the graphics horsepower that Nvidia graphics silicon can.

Huang said Intel sells an Atom chip by itself for $45, but sells a three-chip set for $25 to lure business away, according to Reuters. "That seems pretty unfair," he said to Reuters.

This accusation by Huang follows the European Commission's decision to fine Intel $1.45 billion for employing "illegal" tactics to compete against Advanced Micro Devices.

An Intel spokesman said that computer makers are free to purchase the Atom chip alone or bundled with other chips. "If you want to purchase the chip set, obviously there is better pricing," he told Reuters.

Updated at 12:45 p.m. PDT: adding AMD statement.

The question of whether Intel engages in abusive market behavior has been answered by the European Commission. Or has it?

To recap, the EC said:

"Intel limited consumer choice and stifled innovation by preventing innovative products for which there was a consumer demand from reaching end customers."

And: "Intel gave wholly or partially hidden rebates to computer manufacturers on condition that they bought all, or almost all, their x86 central processing units (CPUs) from Intel. Intel also made direct payments to a major retailer on condition it stock only computers with Intel x86 CPUs. Second, Intel made direct payments to computer manufacturers to halt or delay the launch of specific products containing a competitor's x86 CPUs and to limit the sales channels available to these products."

Advanced Micro Devices enthusiastically joins the EC decision, which may "open the floodgates" for civil suits, according to reports. (The fine is paid to the European Commission, not the company that allegedly suffered the damage.)

Though AMD has made it clear that "focusing on the current market dynamics misses the fundamental point of the EC findings" (the period in question for the EU decision is October 2002 through December 2007 and covers servers, desktops, and mobile), looking at current competitive dynamics between Intel and AMD does serve to show that there may be other factors in play.

Intel, for instance, usually takes between 85 percent and 90 percent of the total mobile market share, (though AMD did gain some ground in the first quarter of this year, according to IDC) and Intel virtually owns the newest mobile segment--Netbooks, where AMD is not even a player, by its own choice.

Intel mobile processors usually best AMD mobile processors in benchmarks and power efficiency, and this is validated by Intel's standing at first-tier PC suppliers, where AMD is conspicuously absent or barely present in many mobile lineups.

So, are AMD processors absent or underrepresented because of Intel's alleged big stick, or for other reasons? Apple uses no AMD processors. But Apple prides itself on calling the shots--and is certainly Intel's equal in market power. (No Intel stickers and no Intel market development funds for Apple). And it's safe to say that brass-knuckles negotiating is certainly not a tactic exclusive to Intel. (Remember, Apple dumped Intel graphics silicon in favor of Nvidia in the newest MacBooks).

And other first-tier PC makers like Sony and Dell offer (or have offered) only a few AMD-based laptops. Is this because Intel is a bully or does it have more to do with AMD's competitive standing?

Best Buy statistics underscore this lopsidedness. The largest retailer in the U.S. currently lists on its Web site 81 Intel-based mobile SKUs (models) and only 13 models that use AMD processors.

Finally, remember that we're not including graphics chips from AMD's ATI unit. These chips compete for desktop and laptop circuit board real estate with Nvidia and Intel's integrated graphics silicon.

Advanced Micro Devices is flying the European Union flag on its home page. A little gloating going on?

And if the image doesn't convey the message, the caption does: "European Commission finds Intel guilty of breaking antitrust laws, harming consumers."

AMD's current home page flies the EU flag

(Credit: AMD)

That's not all. AMD's Break Free page is a treasure trove of information on the EU case and Intel's alleged bad behavior. "Read the European Commission's Press Release Detailing its Ruling Against Intel" and "Read the European Commission's Questions and Answers Detailing its Ruling Against Intel"--are a few of the selected readings.

AMD likes to say that it spearheaded the movement to dual-core processors (quoth AMD: "without AMD there would be no price pressure on Intel, dual-core processors would still be a year away"--quoting a 2006 media report on its Break Free site) and out-innovated Intel in the server market in the 2004 to 2006 time frame.

So, the first AMD 32-nanometer processor is due when exactly?

Updated on May 14 at 2:40 p.m. PDT with additional comments from AMD.

The chip choices that Dell has made for its business PC line provide some insight into the challenges facing Advanced Micro Devices in the wake of the European Union ruling Wednesday against Intel.

Dell has no AMD-based laptops in its corporate line

(Credit: Dell)

"At this point in time we have one AMD desktop but no AMD notebooks," Darrel Ward, director of product management for Dell's business client product group, said in a phone interview Wednesday on a topic unrelated to the EU case. "If you talk to us a year from now, it's probably going to be different. What we try to do is optimize our portfolio based off where we see demand and where we can get the best ROI (Return On Investment) for our engineering dollars."

So, is Dell involved in some venal backroom dealings with Intel in order to box out AMD? We don't know the answer to that question, but most likely not. Dell is simply trying to provide what it considers to be the best systems for its customers.

AMD's 2001 complaint to the EU and subsequent 2005 antitrust lawsuit against Intel have propelled many of the allegations against Intel. And AMD's argument has been made abundantly clear via the EU decision: that is, Intel is leveraging its dominant market position in an illegal manner to exclude competitors from the PC processor market.

But what about AMD competitiveness? And, as a corollary, why do vendors like Dell choose Intel over AMD?

"In part it's because Intel's manufacturing is so superb," said Dan Hutcheson, CEO and Chairman of VLSI Research, a marketing research firm. "And the fact that Intel has such huge economies of scale. That's been one of their big advantages."

Hutcheson said that many companies have tried to take on Intel over the years and failed--but not necessarily because Intel behaved in an illegal manner. "Transmeta said they were going to knock Intel out with the foundry (factory) model. And then there was Cyrix," Hutcheson said. "We've just had dozens of companies over the years that said they would be more cost effective (than Intel). AMD is the only one that's come close."

AMD's struggle to gain market share isn't rooted so much in Intel's behavior but AMD's own strategies. "I'm not quite sure how much of AMD's bad luck over the last few years can really be traced to Intel's behavior," said Charles King, Pund-IT's president and principal analyst. "They've largely missed the burgeoning market in mobile computing because of decisions that they've made. Whatever injury AMD may have suffered due to Intel's rebate and discount programs, the company has really injured itself more severely over that same period of time."

AMD spokesman Drew Prairie had this to say in response to the above discussion about AMD's lack of competitiveness in the mobile PC market. "Focusing on the current market dynamics misses the fundamental point of the EC findings: it doesn't matter how much innovation AMD pours into its products, Intel broke the law to ensure that that PC manufacturers and retailers were not free to base their decisions on which products to bring to market based on the merits of Intel's and AMD's offerings," Prairie said.

In a conference call this morning, Intel CEO Paul Otellini responded aggressively to the allegations attached to the $1.45 billion fine levied by the European Union.

The fine was levied because EU regulators determined that Intel had violated antitrust legislation and engaged in anticompetitive practices to exclude competitors from the market for x86 (Intel-compatible) processors, the Commission said in a statement Wednesday.

Otellini began with an opening statement, citing the Commission's allegations of the chipmaker "granting conditional rebates, where the conditions just weren't just volume-based but allegations about exclusive dealings or in one case exclusivity on retail shelves."

Intel CEO Paul Otellini

(Credit: Intel)

"Intel strongly disagrees with this decision. We do not have those kinds of conditions in our contracts. Our contracts are straightforward. They're consistent worldwide and they're volume-based: the more you buy, the less you pay," he said.

Otellini said Intel will appeal the decision. "We intend to appeal this decision to the (EU) Court of First Instance. We believe a significant amount of evidence was either ignored or disregarded or both by the case team that would refute the allegations," he said, adding: "We intend to abide by whatever was written in the decision as we go through the appeal process."

Responding to a question about the evidence that Intel showed to the EU, Otellini said that OEMs (that is, PC and system suppliers) have stated they were no exclusive deals. "There are a number of documents that refute what was claimed here. In some cases, OEMs made statements that they were not exclusive deals and they were not under conditional terms and those documents were not allowed either into the case file or used properly by the case team in making a determination," he said.

He continued: "The process is originating from a single complainant--AMD. None of the customers complained as part of it or joined the complaint," Otellini said. "I don't see any consumer or competitor harm happening here."

A number of reports say the European Commission will levy a large fine on Intel this week for violating antitrust rules.

The decision to fine the world's largest chipmaker will be handed down on Wednesday, according to Reuters. This action has been expected.

The Commission, part of the European Union, will also order Intel to change the way it provides rebates to computer makers, according to Reuters. On Friday, Commission officials discussed the Intel fine with "national competition authorities," Reuters said.

Intel's only real competition in the worldwide PC processor market is Advanced Micro Devices, which sued Intel in 2005 on antitrust grounds. Intel has been wrangling with the EU since 2001, when AMD filed a complaint.

Last July, the Commission made additional charges against Intel for abusing its dominant position in the chip market in Europe. The charges include offering inducements to European retailers for not buying processors from AMD.

Intel was also charged with paying "a leading original equipment manufacturer (OEM)" to delay the launch of a product with an AMD CPU, and giving "substantial" rebates to the same OEM if it bought only CPUs from Intel.

Various reports are characterizing the fine as one of the largest in Europe's antitrust history. Last year, a fine levied by the Commission on Microsoft exceeded $1 billion in total--a record.