AMD takes gloves off in battle with Intel

AMD takes gloves off in battle with Intel

The gloves have finally come off in the ongoing battle between AMD and Intel.

Last week, AMD announced details of an antitrust lawsuit it had filed against Intel, saying its larger rival had abused its monopoly position to stifle competition and maintain its dominance of the microprocessor market. The suit was filed in US District Court for the District of Delaware. Central to these allegations is a recent report by the Japan Fair Trade Commission (JFTC) on Intel's business practices in Japan.

In several places, AMD's 48-page complaint points to findings in the JFTC report, which was released in March at the end of an 11-month investigation that found Intel had contravened Japan's Antimonopoly Act.

Loyalty rebates

In that report, the JFTC said Intel had offered five major PC vendors rebates and funds in return for using only Intel processors or capping the number of processors from competitors at 10 per cent.

As a result, Intel's market share in Japan grew from 76 per cent to 89 per cent between 2002 and 2003, the report said.

In response, Intel issued a statement saying it disagreed with the JFTC findings, but ultimately accepted the report and chose not to officially challenge it.

AMD's antitrust complaint paints a picture of Intel as an industry bully that used a combination of financial incentives and threats - called "knee-capping" in the complaint - to keep customers from buying AMD products.

"For a long time there have been questions over co-marketing money, whether Intel is using this to offer deep discounts and restrict this to companies that stock exclusively Intel," IDC consultant, Chris Ingle, said.

In the complaint, AMD alleged that Supermicro, a company that makes high-end servers, was so concerned that Intel would discover its plans to develop a server based on AMD's Opteron chip that it secretly moved the development team to a building behind its main manufacturing facility. When the server was finally released, Supermicro limited distribution to 60 customers and promoted it with a brochure marked 'secret and confidential' that did not mention Supermicro by name.

The AMD complaint also provides a glimpse at the lengths AMD was willing to go in order to capture new business.

In 2002, when AMD tried to offer chips for HP to use in its Evo commercial desktop line, HP asked for a $US25 million quarterly fund to compensate it for expected retaliation from Intel, the complaint said.

Instead, AMD agreed to provide the first million processors to HP at no cost, it said.

When HP disclosed its AMD product plans on the eve of the launch, Intel told HP it considered the entry of AMD into the Evo line a Richter 10 event, according to the complaint.

As a result, HP only took 160,000 of the free processors, it said.

Financial incentives

There are also allegations that Intel offered cash to persuade companies not to do business with AMD.

For example, Gateway CEO, Ted Waitt, allegedly told an AMD executive in 2001 that his company had been offered large sums not to do business with AMD, the complaint said.

"I have to find a way back to profitability. If by dropping you, I become profitable, that is what I will do," Waitt said, according to the complaint. Shortly afterwards, Gateway issued a press release stating it would only offer computers based on Intel processors, which it did from 2001 until 2004, the complaint said.

In 2004, AMD sought to rebuild its relationship with Gateway but didn't get very far, according to the complaint. Gateway used AMD chips in a line of PCs made for US electronics retailer, Circuit City Stores.

However, Gateway executives later told AMD they had been beaten into guacamole by Intel in retaliation, the complaint alleged, noting that AMD remains locked out of the majority of Gateway product lines.

Gun to the head

The AMD complaint also delves into industry history with a mention of Compaq Computer, which was acquired by HP in 2001. It alleged that Intel withheld delivery of server chips to Compaq in retaliation for Compaq doing business with AMD.

As a result, Compaq CEO, Michael Capellas, told an AMD executive that his company had to stop buying chips from AMD, saying he had a gun to his head, according to the complaint.

Capellas isn't the only senior executive alleged to have been threatened with retaliation by Intel for dealing with AMD.

In September 2003, former Intel CEO, Craig Barrett, now the company's chairman, allegedly paid a visit to Acer chairman, Stan Shih, and other senior Acer executives, where he threatened the Taiwanese PC vendor with severe consequences if it publicly supported AMD's launch of the Athlon64 processor, the complaint said.

As a result of Barrett's visit, Acer decided not to participate in the Athlon64 launch and delayed the launch of its Athlon64-based PCs.

Acer president, JT Wang, later said there was nothing unusual about Intel's threats, except that the threats were usually done by lower ranking managers, not the company's CEO, according to the AMD complaint.

Peter Sayer in Paris contributed to this report.

What the analysists said

"I've always believed that Intel took its obligations as a dominant supplier in the marketplace very seriously. If the AMD claims have any basis in fact, it's going to shake my perspective on this"

- Insight 64's Nathan Brookwood

"In a market where there is competition, which supplier is not going to offer some kind of benefit [to its customers] if they are prepared to commit to some kind of exclusivity?"

- Gartner's Brian Gammage

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