September 7, 2005 4:00 AM PDT

Intel: Friend or foe?

In the late 1990s, when Epson's U.S. division decided to adopt Cyrix chips for its PCs, the reaction from headquarters of the Japanese conglomerate was swift and ominous.

"Epson and Intel had an extensive cross-licensing arrangement, and I got a call from the VP of licensing," a former Epson executive said. "'We really want you to reconsider your decision,' he said. Clearly, someone had gotten to him."

That someone, according to this executive, was from Intel--Cyrix's archrival. And even though the U.S. group didn't bow to the pressure from headquarters, Epson eventually turned to Intel when Cyrix ran into manufacturing problems.

Aggressive dealing is nothing new in the technology industry, but the Epson experience illustrates how Intel has elevated the practice to an art form. Unlike other companies known for clumsier tactics, industry veterans say the leading chipmaker has risen to the top of its business at least in part by making deals through a combination of incentives, assistance and hard-nosed negotiating.

These tactics have fallen under new scrutiny in a controversial antitrust lawsuit filed against the company by competing chipmaker Advanced Micro Devices. AMD, which has said it will produce e-mails to back its claims, charges that Intel used threats and rebates to keep PC makers from cutting deals with competitors. South Korea and Europe have also begun to look into Intel's tactics.

"Our potential customers are not free to choose on the basis of price and performance. That is why we are not more successful," said Tom McCoy, executive vice president of legal affairs at AMD. "Major tier-one customers are unable to serve true market demand. To do so would run counter to Intel's dictates."

Intel has emphatically denied any wrongdoing and has declined to discuss issues surrounding the trial beyond its official statements, such as its response issued Thursday: "AMD seeks to impede Intel's ability to lower prices and thereby allow AMD to charge higher prices. AMD's colorful language and fanciful claims cannot obscure AMD's goal of shielding AMD from price competition."

Nevertheless, the AMD suit has drawn wide publicity, not just because of Intel's size but also because the company has been something of a Teflon defendant. Charges brought by semiconductor manufacturer Digital Equipment in the early 1990s led to an amicable settlement that seemed more like a real-estate deal than the culmination of a contentious legal dispute. Antitrust charges brought by another competitor, Intergraph, failed to stick, though it won more than $600 million from Intel in patent settlements.

Intel has largely eluded the wrath of government agencies as well. A case brought by Federal Trade Commission was settled in less than a year. Earlier this year, Intel agreed to accept penalties from Japan's trade agency but paid no fine and admitted no wrongdoing.

Those familiar with the situation say Intel can effectively defend itself in such cases because its tactics are far more subtle than those of other industry leaders with reputations for bullying and arrogance, such as Microsoft, the software half of the "Wintel" juggernaut.

"You just don't feel violated, like with Microsoft," one PC industry veteran said.

Steve Tobak, a principal at Invisor Consulting who used to compete against Intel in the late 1990s while at Cyrix, describes Intel's business practices this way: "The stick is implied. They do it in a way that won't stick in court. But they also have a carrot. And it's a powerful and many-faceted carrot."

Those facets can include such tangible commodities as preferential chip allocation, marketing dollars and introductions to big customers--which can all easily translate into millions of dollars.

Hardware makers that take technological assistance from Intel, such as blueprints or royalty-free reference designs, are often predetermining their eventual adoption of its chips. But these plans also let them cut engineering budgets and the time required to come to market.

To maximize the timing and nature of these incentives, Intel also maintains a highly effective network of industrial intelligence. Often, when Cyrix was about to sign a deal with a second- and third-tier motherboard maker for a few thousand chips in Europe or Taiwan, Tobak recalled, Intel would swoop in with co-op dollars.

"No deal was too small," he said.

By contrast, the competition has never been quite as organized. Several years ago, sources say, Cyrix, AMD, Compaq Computer and IBM formed something called "The Sundance Consortium" to

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Charges very easy to prove...
...despite flowery language employed by Intel spokepersons to the contrary...;)

All AMD needs to do is to produce the agreements in which any companies have been given any sort of renumeration (rebates, discounts, ad subsidies, or kickbacks) by Intel for either of the following or both:

(1) Buying Intel cpus to the exclusion of anyone else's cpus ("anyone else," of course, being AMD)

(2) Agreeing to limit their purchases of AMD cpus to an arbitrary percentage of the total number of Intel cpus purchased during a given span of time.

Such purchase agreements are generally specified in detail as to the terms employed and should be child's play to produce if in fact they exist (as I believe they do.)

Despite Intel's comments trying to paint the AMD complaint as nebulous, vague, and just vacuous in general, I believe AMD's complaint is as black & white as it gets.

I loved the ZDNet editorial comment from unknown vendors saying in essence, "Gee, we love it when Intel rapes us because we are raped so subtly we hardly know it. When Microsoft rapes us we know it because they tell us all about it up front and we find it unpleasant."

Heh...;) When you really think about that self-serving remark it's highly amusing. The idea that Intel should escape consequences for raping and manipulating the markets as it has done, simply on account of the raping having been somewhat painless for the companies receiving Intel's money, is just too funny for words. That Intel proponents might ever think such a remark would generate some *defense* of their conduct in a legal sense leads me to believe that Intel is desperate not to have this can of worms fully opened and exposed.

Thing is, opinions are irrelevant. What counts is scrutiny of the routine purchase agreements Intel executes with the companies which buy its products. If those agreements show that Intel is paying the markets not to do business with AMD then AMD wins--open and shut.

In fact, I'd pretty much say that in the "court" of public opinin AMD has already won--as so much in its complaint is commonly known to lots of people in the industry. What's amazing to me is the amount of restraint AMD has had up until now, frankly.
Posted by Walt Connery (89 comments )
Reply Link Flag
Charges very easy to prove...
...despite flowery language employed by Intel spokepersons to the contrary...;)

All AMD needs to do is to produce the agreements in which any companies have been given any sort of renumeration (rebates, discounts, ad subsidies, or kickbacks) by Intel for either of the following or both:

(1) Buying Intel cpus to the exclusion of anyone else's cpus ("anyone else," of course, being AMD)

(2) Agreeing to limit their purchases of AMD cpus to an arbitrary percentage of the total number of Intel cpus purchased during a given span of time.

Such purchase agreements are generally specified in detail as to the terms employed and should be child's play to produce if in fact they exist (as I believe they do.)

Despite Intel's comments trying to paint the AMD complaint as nebulous, vague, and just vacuous in general, I believe AMD's complaint is as black & white as it gets.

I loved the ZDNet editorial comment from unknown vendors saying in essence, "Gee, we love it when Intel rapes us because we are raped so subtly we hardly know it. When Microsoft rapes us we know it because they tell us all about it up front and we find it unpleasant."

Heh...;) When you really think about that self-serving remark it's highly amusing. The idea that Intel should escape consequences for raping and manipulating the markets as it has done, simply on account of the raping having been somewhat painless for the companies receiving Intel's money, is just too funny for words. That Intel proponents might ever think such a remark would generate some *defense* of their conduct in a legal sense leads me to believe that Intel is desperate not to have this can of worms fully opened and exposed.

Thing is, opinions are irrelevant. What counts is scrutiny of the routine purchase agreements Intel executes with the companies which buy its products. If those agreements show that Intel is paying the markets not to do business with AMD then AMD wins--open and shut.

In fact, I'd pretty much say that in the "court" of public opinion AMD has already won--as so much in its complaint is commonly known to lots of people in the industry. What's amazing to me is the amount of restraint AMD has had up until now, frankly.
Posted by Walt Connery (89 comments )
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AMD will lose either way......
Even if they do win the court battle, what are they doing to improve performance? I've run AMD processors for many years. I'm currently running dual MP 2600s and the problems I've always had with AMD is finding good boards to run them. Everything from Asus to MSI, gets decent performance, but gets whipped hands down by equivilent Intel chip/board combos. I'm currently building a new system and for the first time in 10 years I'm going to use an Intel base. I love you AMD, but you suck right now and I need performance today.
Posted by (9 comments )
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Your joking right????
Motherboards for AMD CPU's have been giving Intel a black eye for awhile now. Although there isn't really a great performance difference overall between AMD and Intel theses days, but AMD usually comes out the winner.

I don't know what you are looking for in a system, but a dual core AMD CPU and nForce chipset (with or without SLI) is a good choice if you have the cash. If not, nForce or VIA make excellent chipsets for AMD CPU's.

If you can't find a good performing chipset for an AMD CPU, I'm sorry to say, but you just aren't looking. (I want to note I'm not trying to be offencive to you. Although I am sure I am sounding like a diehard fan boy. If I come across that way or sound rude please accept my apologies.)

My best answer to this is buy what you like, can afford, and suits your needs. I believe that AMD has a better overall value than Intel's P4 line (the P-M's on the other hand might just give AMD a black eye). Truthfully, though you will probably be happy either way you go.
Posted by System Tyrant (1453 comments )
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