Intel to Pay AMD $1.25 Billion to Settle Disputes (Update3)
By Ian King
Nov. 12 (Bloomberg) -- Intel Corp. agreed to pay Advanced Micro Devices Inc. $1.25 billion as part of a legal settlement that ends a four-year dispute between the world’s two largest computer-processor makers. AMD stock rose as much as 27 percent.
The settlement includes all antitrust litigation and patent cross-license disputes, the companies said in a statement today. The two agreed to a new five-year cross-license pact and will give up claims of breach from the previous agreement. Intel also agreed to abide by a set of business-practice provisions.
AMD sued Intel in Delaware in 2005 alleging it controls the microprocessor market in part by providing discounts to customers that avoid AMD’s products. Intel has faced anti-trust investigations dating back to the early 1990s and the two companies had battled over licenses before. Intel, which had more than 80 percent of the processor market, is also facing increasing regulatory scrutiny for its business practices.
“AMD is going to be perceived as the big winner here, but the bigger winner is Intel,” said Hans Mosesmann, an analyst at New York-based Raymond James & Associates. “Instead of writing a check for $10 billion over time, they write one for $1 billion.”
Mosesmann has a “neutral” rating on AMD’s stock, an “outperform” on Intel and doesn’t own either.
AMD, based in Sunnyvale, California, rose $1.19, or 22 percent, to $6.51 at 2:41 p.m. in New York Stock Exchange composite trading and earlier reached $6.73. The shares had more than doubled this year before today. Intel fell 8 cents to $19.76 in Nasdaq Stock Market trading and had gained 35 percent this year before today.
‘Doesn’t Change Anything’
AMD has posted 12 straight quarterly losses and its sales have lagged behind those of Santa Clara, California-based Intel. AMD is trying to regain the 25 percent market share in server chips it had in 2006. The companies said the settlement lets them focus on product innovation and development.
“AMD gets cash, which is nice. But this doesn’t change anything,” Mosesmann said. “Their chips are not faster or cheaper all of a sudden.”
Intel had about $12.9 billion in cash and short-term investments at the end of September, compared with about $2.5 billion for AMD.
The settlement is the largest in the U.S. so far in 2009, according to data compiled by Bloomberg. The second-largest, announced in April, covered an agreement by Qualcomm Inc. to pay Broadcom Corp. $891 million in cash over four years to end a patent dispute over hand-set technology.
Small Multiple
Intel Chief Executive Officer Paul Otellini said that while it “pains” him to write a check, the settlement is a “small multiple” of what his company risked having to pay in damages if it had lost at trial. He said Intel had no problem agreeing not to use the unfair tactics AMD has accused it of because it has never used such practices.
“The AMD antitrust case has been massive and promised to become even more so,” Otellini said on a conference call. “We have not wavered in our conviction that Intel has operated within the bounds of the law.”
Otellini said the settlement will not change any of Intel’s marketing or volume discount programs, including the “Intel Inside” marketing subsidy given to personal computer makers. Intel and AMD will try to arrange quarterly meetings to resolve any possible breaches of the agreements, he said.
200 Million Pages
AMD CEO Dirk Meyer said the settlement will provide his company with a fair chance to compete. The terms of the deal free AMD to outsource its chip production -- its previous licensing terms with Intel stipulated manufacturing chips in house. AMD spun off its plants last year into Globalfoundries Inc., a joint venture with the government of Abu Dhabi.
“This has never been about money, it’s about the market place,” said Meyer on a conference call. “With this agreement we are trying to reset the relationship between Intel and AMD. It’s been intense, emotional and acrimonious for too many years.”
The Delaware antitrust case had been scheduled for a jury trial beginning March 29. In preparing for the trial, lawyers had gathered more than 22 million documents -- enough “to fill 5,000 pickup trucks,” according to court papers. Intel’s Otellini said the case had generated 200 million pages by the time of the settlement.
Federal Review
The antitrust litigation included more than 40 individual cases, some filed by computer purchasers who claimed Intel’s actions increased prices. The most recent case was filed Nov. 4 by New York Attorney General Andrew Cuomo, accusing Intel of threatening manufacturers and providing billions of dollars in illegal payments to ensure Intel chips were used.
In June 2008, Intel said that the Federal Trade Commission was investigating potential antitrust violations relating to the microprocessor market. In a statement today, the FTC said it plans to review the companies’ settlement. The Commission said its investigation of Intel’s practices is continuing and declined to comment further.
This settlement may enable Intel to resolve the FTC inquiry and Cuomo’s case, said Robert Burka, an antitrust lawyer at Foley & Lardner LLP in Washington.
“Intel’s engaging in a new set of business practices should assuage both the federal and state antitrust regulators,” he said. “Presumably they entered into these new set of business practices with governmental law enforcement authorities’ concerns in mind.”
‘Dastardly Deeds’
AMD had also filed an antitrust complaint against Intel with the European Union. In May, EU regulators levied a record 1.06 billion-euro ($1.58 billion) fine against Intel and ordered the company to stop using illegal rebates to thwart competitors.
Following an eight-year investigation, the EU found that Intel impeded competition by giving rebates to computer makers that buy all or almost all of their chips from Intel.
In a statement today, the EU said it continues to “vigorously” monitor whether Intel complies with the May ruling.
Intel’s settlement with AMD may help it appeal the EU fine, according to Michael Shinnick, who helps manage $6 billion in assets, including Intel shares, at Wasatch Advisors Inc., in South Bend, Indiana.
“It’s going to be much more difficult to prove that these guys are involved in mean, dastardly deeds when the supposedly injured party said ‘we have relief,’” he said.
Separately, Intel has hired Douglas Melamed to fill its vacant general counsel position, according to a person familiar with the matter. Melamed joins Intel from Washington-based WilmerHale where he was a partner in the company’s regulatory and government affairs division.
The main case settled is Advanced Micro Devices Inc. v. Intel Corp., 05CV441, U.S. District Court, District of Delaware (Wilmington).
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net
Last Updated: November 12, 2009 14:54 EST |
