Intel Corp. and Advanced Micro Devices this morning announced an agreement to end all outstanding legal disputes between the companies, including antitrust litigation and patent cross-license disputes.
 
The deal will end a long-running legal battle between the rivals and will see Intel pay AMD $1.25 billion. Under the agreement's terms, AMD and Intel obtain patent rights from a new five-year cross-license agreement. Each company will also give up any claims of breach from their previous license agreement, issued in 2001. 

Intel has also agreed to abide by a set of business practice provisions. Such provisions, as stated in an SEC filing Intel made today, include Intel not offering rebates or discounts that limit or restrict a customer's MPU choices; Intel not taking actions that limit or delay purchases or use of specified AMD products; and Intel regularly instructing personnel on the terms of its agreement with AMD.

"Intel has historically used the 'Intel Inside' program to offer customer rebates that co-brand its PCs. Additionally, Intel may have made volume discounts to certain customers, especially those that only used Intel chips," Craig Berger, a semiconductor market analyst at FBR Capital Markets, wrote in a research note today. "Although it will not be made public which Intel business practices will end, we believe these rebates and/or volume discounts could be addressed. For AMD, although this agreement may level the playing field slightly, ultimately OEM purchasing decisions come down to product price, performance, branding, customer preferences, and long-term relationships."

Berger continued to state that AMD is two years behind Intel in ramping its process technologies. However, he noted that at AMD's analyst day Wednesday company management claimed that AMD's GlobalFoundries alliance will close this gap meaningfully by 2011.

For its part of the agreement, AMD will drop all pending litigation including the antitrust case in US District Court in Delaware and two cases pending in Japan. AMD will also withdraw all of its regulatory complaints worldwide.

In prepared remarks for a conference call this morning, AMD CEO Dirk Meyer also noted that the deal would allow GlobalFoundries "the freedom to operate as an independent world-class leading-edge foundry company, going forward, without being a subsidiary of AMD." AMD confirmed plans to spin off its manufacturing operations in October 2008 to form GlobalFoundries with an outside partner. As AMD did so, Intel claimed GlobalFoundries was not a subsidiary under terms of the 2001 patent cross-license agreement between it and AMD and was therefore not licensed under the agreement.

In a separate conference call this morning, Intel CEO Paul Otellini said that the payment does not imply an admission of guilt by Intel. He also said that the settlement guards Intel against a possible jury verdict in the Delaware antitrust case that could have included steeper punitive damages against Intel.

Analysts agreed this morning, noting that Intel avoided a lengthy and potentially uncertain trial process with the settlement. Barclays Capital semiconductor market analyst Tim Luke said in a research note that in addition to avoiding the trial process and lowering its overall legal expenses, the agreement by AMD to now withdraw its complaints in all regions "may help Intel in addressing its disputes with the New York Attorney General and to some extent potentially in its appeal against the European Commission's $1.5 billion fine and ruling."

Indeed, Intel has recently faced claims of anticompetitive practices beyond those made by AMD. New York State this month claimed Intel bribed and coerced PC OEMs, violating state and federal antimonopoly laws, by engaging in a campaign of illegal conduct to maintain its top-ranking place in the MPU market. In Europe, Intel is currently fighting allegations of anticompetitive behaviors made by the European Commission, ones that come with a record $1.45 billion EC antitrust fine.

Luke also noted that today's agreement will lower AMD's overall expenses and that the Intel settlement money will allow it to pay down some debt, $1.8 billion of which is due in 2012.

By: DocMemory
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