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Intel to pay AMD $1.25 billion in legal settlement

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The feuding Hatfields and the McCoys of the chip industry have buried the hatchet. Intel and Advanced Micro Devices announced today they have settled all antitrust and patent cross-license litigation between them. In the deal, Intel will pay $1.25 billion and “abide by a set of business practice provisions.”

In the antitrust litigation, AMD accused Intel of using its incentives to force customer PC makers into exclusive or near exclusive arrangements that prevented them from buying large numbers of AMD chips. The settlement of the litigation that began in 2004 will presumably be good for consumers, who will benefit from the competition that ensues between a financially viable AMD and a less-cutthroat Intel.

amd 3The deal will likely save AMD’s business; just yesterday, AMD executives said they had $3.6 billion in debt, with a big chunk of it coming due in 2012. Asked how they were going to pay off that debt, with only $1.5 billion of cash in the bank, the AMD executives provided no real answer.

The settlement means that AMD will drop its mammoth private antitrust case in Delaware and two pending cases in Japan and withdraw all of its regulatory complaints worldwide. But government agencies can still bring cases against Intel. The European Union fined Intel $1.45 billion in May, and Intel just got hit with a new antitrust suit by the New York Attorney General’s office. Intel is appealing the fine and fighting the New York action, and so those cases will continue.

The cross license agreement between the companies has now been updated to legally allow AMD’s move to split itself into two companies. AMD designs chips, while its Globalfoundries subsidiary — partially owned by the Abu Dhabi government — makes chips. Now Globalfoundires is free and clear to operate independently without risk of lawsuits from Intel.

It’s hard to say what forced the settlement. The private antitrust suit was headed for a trial in March. It seemed like AMD stood to gain a lot from a successful lawsuit, based on the magnitude of losses that it blamed on Intel. But the outcome wasn’t guaranteed, despite the big EU fine, and AMD also needed the patent litigation cleared out of the way to ensure a smooth supply of its chips. It also has a big payment coming due in 2012.

According to AMD, Intel has agreed to stop the following practices:

• Offering incentives to PC makers in exchange for their agreement to buy all of their microprocessor needs from Intel, whether on a geographic, market segment, or any other basis

• Giving inducements to customers in exchange for their agreement to limit or delay their purchase of microprocessors from AMD, whether on a geographic, market segment, or any other basis

• Incenting customers in exchange for their agreement to limit their engagement with AMD or their promotion or distribution of products containing AMD microprocessors, whether on a geographic, channel, market segment, or any other basis

• Rewarding customers in exchange for their agreement to abstain from or delay their participation in AMD product launches, announcements, advertising, or other promotional activities

• Offering inducements to customers or others to delay or forebear in the development or release of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis

• Giving inducements to retailers or distributors to limit or delay their purchase or distribution of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis

• Withholding any benefit or threatening retaliation against anyone for their refusal to enter into a prohibited arrangement such as the ones listed above.

In a joint statement the two companies commented, “While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development.”

On a conference call, AMD chief executive Dirk Meyer said, “Everybody is a winner here including Intel. They should be congratulated for trying to put this behind them and listen to everyone’s concerns as well as defend their rights.”


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