What Intel just bought for $1.25 billion: Less risk
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.
Stephen Shankland writes about a wide range of technology and products, but has a particular focus on browsers and digital photography. He joined CNET News in 1998 and since then also has covered Google, Yahoo, servers, supercomputing, Linux and open-source software, and science. E-mail Stephen, or follow him on Twitter at http://www.twitter.com/stshank. 
WHY WHY WHY?!?!? This has no more to do with Apple than it does to do with Dell or HP, why do people find the need to mention Apple in every darn article?
They have a whole department with numerous engineers devoted to working with Apple on products. Have you read the agreements on the settlement? This could easily be disbanded because of AMD whining too loud.
Intel is going to keep making chips. AMD will continue to make chips. And in the almost imposible chance that intel were to disappear in the distant dark future, some other company will supply the damn chips. Thats how life works, grow up.
Hahahaaa! Never mind that they were conditional one excluding any and all competition.
- by adrianj November 13, 2009 11:48 AM PST
- now only if AMD could find a way to be relevant again. they have nothing I've seen even on paper that compares to the i7. in fact, it seems they're barely keeping up with the middle Intel's Core 2 Duo line.
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- by tipoo_ November 13, 2009 2:38 PM PST
- Check out their new roadmaps, Anandtech has some good articles up now.
- Like this
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- by cosuna November 13, 2009 3:09 PM PST
- @adrianj:
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(16 Comments)they have a lot of things to worry about.
AMD invented x64 and the Opteron, without it, the i7 would have been another x86 with 4Gb RAM maximum address space. Intel has done a nice job with Core 2 Duo, Atom and now i7, but there was a time that they were followers and not leaders.
How I wish this kind of lawsuits were imposed on Microsoft so they started sharing the Win32 internals. When people buy Windows, most of them do so they can run the software. If Microsoft lost that edge, we would start seeing Windows compatible clones (or Windows compatible Linuxes) by the dozens and end the Microsoft dominance. Right now they want to kill the netbook just because they don't see profit.
C'mon NYC, tackle the obvious candidate and leave Intel alone. They are no longer a threat.