Did Intel Get Off Cheap in AMD Settlement?

Agreement ends chipmakers' antitrust dispute

By OWEN THOMAS

Updated 2:33 PM EDT, Thu, Nov 12, 2009

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Intel got off easy.

The giant Silicon Valley chipmaker paid off its longtime rival, AMD, with a $1.25 billion settlement to end a lawsuit in which it stood accused of violating antitrust rules.

That may sound like a lot of money, but its only 12 days of revenue for Intel. Government authorities in the U.S. and Europe are still pursuing antitrust complaints against Intel -- but without a complainant like AMD, it will be harder to push those claims. "The bigger winner is Intel," Raymond James analyst told Bloomberg.

AMD filed its lawsuit against Intel in 2005, but the deeper dispute goes back decades. Intel, which dominates the market for PC and server chips, gave AMD a license to its chip designs in its early days. Intel was much smaller then, and buyers wanted reassurance that they'd be able to get a steady supply of chips. Since then, the two companies have played a cat-and-mouse game in chip fabs and courtrooms, with AMD struggling to make sure it had the right to produce Intel-compatible chips.

According to various antitrust complaints filed against Intel, the chipmaker put the squeeze on PC makers to buy only Intel chips, charging higher prices to those who strayed. Those sharp-elbowed contracts, as well as low prices, helped keep its market share at 80 percent.

Under the settlement, Intel agreed to drop that and other anticompetitive practices, and to cross-license patents for the next five years -- a provision which may prove more valuable to AMD than cash.

Both companies can now turn to bigger problems: A glut of cheap chips.

An industry maxim, Moore's Law, says that the number of transistors in a microprocessor -- a rough measure of its power -- doubles every 18 to 24 months. But there's a flipside to Moore's Law: All else being equal, a chip of the same power drops in price by half over the same time period.

In the past, PC makers have convinced consumers and businesses to shell out for more powerful computers. But email and Web browsing doesn't require much computer power -- hence the rise of $300 netbooks, which don't do much more than that but satisfy ordinary users' needs.

Can you blame Intel for trying every trick in the book, and perhaps a few that weren't, to keep a lock on the market?