Frustration Over Lack Of Market Gains Led To AMD-Intel Suit

Advanced Micro Devices Inc. filed an antitrust suit against Intel on Monday because of a growing frustration at its inability to make major market-share gains over the past three years, despite what it sees as bringing demonstratively more-innovative products to market.

"We deserve to have a significantly larger share of the market than we currently have," Hector Ruiz, chairman, president, and chief executive of AMD, said during a teleconference Tuesday. "By any measure we should be participating at a significantly higher number, and the only thing that is keeping us from achieving those numbers are the illegal, monopolistic practices of our competitor."

AMD has about 10% of the overall x86 microprocessor market revenue, the same share it has had for the past three years, Ruiz said. During that time, however, AMD led the way in introducing 64-bit capabilities and dual-core processors to the market, he said.

Nathan Brookwood, an analyst with Insight 64, says he understands AMD's disappointment. But he notes that historically, having the best technology hasn't always ensured a company's success.

"Let's face it, in many segments right now AMD's products are winning most of the benchmarks and have many desirable characteristics," Brookwood says. "If you can't sell your product when you have the strongest ones in the market, then if you have responsible management, you've got to address the issues that are keeping you from succeeding."

In its 48-page complaint filed in U.S. District Court in Delaware, AMD spells out what it says has been Intel's discriminatory pricing policies and threats of retaliation against customers. Those actions, it charged, have kept 38 makers of PCs and servers from using AMD processors.

"Intel's conduct has unfairly and artificially capped AMD's market share," the suit says.

Specifically, AMD says Intel has bought exclusivity with Dell, the largest provider of PCs in the world, "with outright payments and favorable discriminatory pricing and service. In discussions about buying from AMD, Dell executives have frankly conceded that they must financially account for Intel retribution in negotiating pricing from AMD."

AMD also pointed to its eroded relationship with Sony. By the end of 2002, AMD had a 23% processor socket share with Sony; it has since dropped to zero. AMD claimed Intel paid Sony "multimillion-dollar sums, disguised as discounts and promotional support," in exchange for microprocessor exclusivity.

AMD also claims that Toshiba executives told them that Intel's financial inducements with them amount to "cocaine, but they were hooked because engaging with AMD would jeopardize Intel market development funds estimated to be worth $25 million to $30 million per quarter."

Major PC retailers such as Best Buy, Circuit City, and Office Depot have been forced to stock only Intel-based systems or offer only limited AMD-based systems, as Intel has threatened to reduce or eliminate market-development funds paid to the retailers, the suit claims.

Proving the illegality of many of those practices could be difficult, Brookwood says.

"Intel historically has been a company that has spent a lot of money to understand precisely where the line between legal and illegal competitive behavior is drawn," Brookwood says. "I'm sure Intel will come up with a compelling argument about why everything AMD claims either never happened, didn't happen the way AMD is reporting it, or even if it did happen, it was just good business practices."

"We haven't seen the lawsuit, so we can't provide specific comment," a spokesman for Intel said Tuesday. "But we believe our sales practices are both fair and consistent with all antitrust laws."

AMD filed the suit when it did in part because of a recent ruling from the Fair Trade Commission of Japan, which found that Intel violated the anti-monopoly act in Japan, and the European Commission is investigating Intel for similar possible antitrust violations, Ruiz said.

"We are out to remedy the imbalance in the microprocessor sector that has been ignored for too long," he said. "Many industry insiders and observers have known for years that Intel uses its monopoly position to block competition by hurting its own customers and the industry at large."

Thomas McCoy, executive VP of legal affairs and chief administrative officer for AMD, says the company's suit "provides 48 pages of detail, naming 38 companies, analyzing seven separate forms of illegality spread across three continents, and adding up to one massive global antitrust violation.

"Despite being fully competitive with the best Intel has to offer, AMD's commercial desktop business is no greater now than it was in 2002. One hundred percent exclusive contracts are no coincidence," McCoy said.

Intel will "drag its feet" in an attempt to delay a hearing on the suit in which AMD will seek a tripling of damages, McCoy said, "but the government got the Microsoft case to trial in less than 18 months, and we'd like to get to trial by the end of 2006."

In the lawsuit, AMD also details its long and often litigious history with Intel. Back in the early '80s, AMD agreed to drop its internal processor developments and serve as a second source for Intel's 80286 processor. Although an agreement at the time required Intel to provide AMD with timely updates on its processor development, Intel instead engaged in a "deliberate effort to shackle AMD progress."

In the mid-'80s, Intel declined to provide access to information on its 386 development, leading to further AMD lawsuits, which "drained AMD's resources, delayed AMD's ability to reverse-engineer or otherwise develop and manufacture competitive products," the suit alleges.

In 1992, an arbitrator awarded AMD more than $10 million and a license to Intel's 386 processor. In 1995, AMD and Intel signed another cross-licensing agreement, and at that time AMD decided to develop its own architecture rather than continue to serve solely as a second-source supplier.

It's the advancements that AMD has made with its Athlon and Opteron processors over the past five years that make this latest suit different from those in the past, Brookwood says.

"In 1993, it was more of a screaming and kicking about Intel not living up to their agreement and providing blueprints of their chips," he says. "It would be hard for Intel to argue today that AMD's problems are that they have rotten products and are trying to win in court what they couldn't win in the market."