It’s amazing how much the world changes before breakfast.

At 6am Pacific this morning, a joint Intel & AMD press release hit our inboxes like a nuclear bomb: AMD and Intel are settling their differences. And just like that, the CPU landscape as we know it has significantly changed.

We’re previously talked about the spat between AMD and Intel, one that Intel was looking increasingly likely to lose. AMD had had leveraged some very serious accusations against Intel over actions Intel supposedly undertook earlier this decade: paying OEMs and retailers not to use or carry products utilizing AMD processors through the use of discounts and rebates.  With this AMD launched civil anti-trust suits, and petitioned various governments for criminal anti-trust investigations.

Recently, the European Union’s European Commission agreed with AMD’s claims, resulting in the EC fining Intel for roughly $1.45 billion. And other governments had investigations in various states, including the New York Attorney General’s which opened up a case against Intel earlier this month. Things were not going well for Intel.

With a major loss for Intel looming, the massive cost of many more years of litigation, and the monumental fine Intel would face if they lost a case in the United States (where damages are trebled), Intel and AMD sat down and began settlement talks in earnest in April, culminating in what has happened today. AMD and Intel have agreed to settle all of their outstanding litigation, Intel has agreed to adhere to certain business practices, Intel will be paying AMD, and the two companies have signed a new 5-year cross-licensing agreement for x86.

We should note that even with this settlement, neither AMD nor Intel are admitting to any wrongdoing. Intel is not admitting to engaging in any anti-competitive actions, and AMD is not admitting to breaking their existing x86 license by not producing the bulk of their CPUs in-house. In laymen’s terms, everyone is agreeing to be happy and to stop bludgeoning each other with lawsuits.

Out of this settlement come four major things for AMD:

  1. $1.25 billion in cold, hard cash.
  2. Intel will stop doing things that they and AMD agree they shouldn’t be doing.
  3. The right to not have to produce x86 CPUs in-house. AMD can go fabless.
  4. The right to have their x86 processors fabricated anywhere of AMD’s choosing.

Although AMD and Intel don’t attribute anything to the cash portion of the settlement beyond the fact that it’s a number the two could agree on, we believe that it is intended to cover the legal costs AMD has incurred over the years in fighting Intel. Remember why Intel settled in the first place: anti-trust suits are expensive. AMD will receive the $1.25 billion in cash within 30 days.

The second concession to AMD is that Intel and AMD have come to an agreement on which business practices Intel is and isn’t allowed to engage in, which Intel will have to adhere to. This is a tricky thing, since as we stated before Intel hasn’t admitted to any wrongdoing, so we’re not quite sure what practices are in question. Intel claims that this won’t result in any changes for them, but we will hopefully have a better idea once the agreement is published by the Securities and Exchange Commission. Without any additional information, our best guess is that whatever Intel was doing specifically to drive AMD out of the market, they have or are going to stop doing it.

Moving on, it’s the 3rd concession that’s the biggest for AMD. Although the Intel/AMD x86 cross-licensing agreement is private, it’s well-known that the agreement stipulated that AMD needed to produce the majority of their x86 processors in-house. With the formation of Global Foundries, AMD was applying a new interpretation to that requirement, one that Intel disagreed with and lead to a side-suit between the companies.

As part of this settlement, the in-house production requirement has been dropped from the cross-licensing agreement. AMD is no longer required to produce x86 CPUs, and as of today AMD has begun immediate preparation to go fully fabless.


The Foundry Dilemma: No Longer AMD's Problem

AMD has wanted out of the fab game for quite some time, but the cross-licensing agreement prevented that. Now AMD is free to sell off its stake of Global Foundries to Abu Dhabi’s Advanced Technology Investment Company (ATIC), who already owns the other half of GF. The result will be that ATIC will own a foundry like they’ve always wanted, and AMD will be rid of the task of operating a foundry like they’ve always wanted.

This in turn is going to have two immediate short-term benefits for AMD. The first of course is more cash; selling their share in ATIC is going to net the company a fair bit of cash and cash equivalents. The second of which is that AMD had to absorb some of GF’s losses; they would have turned a profit last quarter for example if owning part of GF didn’t cause them to take a $100mil loss. So AMD is going to have more cash on hand, and they’re going to further resolve their long-standing cash bleed. By no means does this make them rich (they still are up to their eyes in debt), but this opens up a great deal of liquidity to invest in new processor designs. After all, they’ve gone fabless, R&D is where the bulk of their investments will be.

Finally, we have the 4th concession: along with not having to produce CPUs in-house, AMD is free to have their x86 CPUs fabricated at any foundry of their choice. One of Intel’s points of contention have been that they don’t want to share x86 information with 3rd parties. Hence the requirement for in-house production in the first place. The settlement means that Intel will not object to AMD’s choice of foundry, opening them up to build CPUs at TSMC, UMC, and IBM, along with the continued use of Global Foundries. Given the cost and work involved in staying competitive with Intel’s fabrication advancements, we’re not sure who would be better prepared than GF, but the option is there on the table if AMD wants it.

Meanwhile, here’s what Intel gets:

  1. AMD is dropping all private suits against Intel
  2. AMD will retract all regulatory complaints with government regulators

As we mentioned earlier, Intel’s constant battle with AMD was expensive for both sides. Intel faced a particular risk, as the fines and judgments against them should they lose in the United States would have been three-times the damages found by the courts. Basically, if Intel was going to lose, they were going to lose big.

With this settlement, all of AMD’s private suits against Intel are immediately dropped. This means that Intel can immediately stop spending money on trying to fight those suits, and at the same time need not worry about what might happen if they were to lose. The key suit among these was an anti-trust suit in Delaware, which was set to begin in March.

Meanwhile things are slightly more complex when it comes to AMD’s regulatory complaints. Since any action taken as a result of these is done by various government agencies, AMD cannot simply have these investigations dropped. What they can do is drop any formal complaints, and go to each regulatory body with Intel, where both will explain that they’ve settled their differences. Ideally, this will be enough to convince these regulatory bodies to drop their investigations. However these bodies are not compelled to do so, and may continue their investigations if they wish. However without AMD’s participation, it would be much harder for these bodies to win at their cases.

The biggest regulatory case for Intel right now is the European Commission case, which is currently in appeal. It’s unlikely that the EC will drop the case after having already ruled against Intel, so the appeal is expected to go on as scheduled. Intel likely has lost this case for good, in spite of the settlement. Meanwhile Intel stands a far better chance of the New York Attorney General’s investigation dropped, along with investigations by US government agencies and foreign trade commissions.

This may not sound nearly as substantial for Intel as it does AMD, but it’s impossible to overstate just how much Intel was at risk of losing here if every case went AMD’s way. Intel could have lost many billions of dollars, if not more. Not losing that kind of money makes for a very good deal for Intel.

Ultimately, in spite of this being a “mutual” settlement, there’s no way to construct it as anything but a major win for AMD. Intel’s actions earlier this decade have presumably come at a great cost to AMD’s position, and this agreement codifies how that should never happen again. Meanwhile AMD is finally free to go ahead with their plans to go fabless, which will complete a significant shift for the company, and for Global Foundries. With this AMD’s immediate financial situation will greatly improve from the settlement cash, the sale of Global Foundries, and from GF no longer driving AMD in to the red. Or as Anand has summarized things, AMD will have the cash needed to go develop another CPU architecture, something essential to the company’s future survival.

With the reality of AMD going fabless however, we will end on a cautionary note. While this settlement greatly improves AMD’s short-term situation, it does not change the long-term situation for the company. AMD is still faced with the challenge of being the first company to make a sustainable business out of fabless x86 CPU design. This settlement cements AMD’s plans going forward, for better or for worse. In time, we hope to see that it’s the right plan.

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  • mutarasector - Saturday, November 21, 2009 - link

    The cross licensing agreement applies to x86 only. Neither company would benefit from licensing each others GPU technologies anyway. For example: Why would Intel want CrossfireX when it has already heavily invested in Lucid's Hydra technology? Or why would ATI want Larabee technology when they're already well ahead of the game with Fusion development?

    If anyone suffers from this settlement, I would think it would be nVidia. Since nVidia is sniffing around at the prospect of entering the x86 game (perhaps buying VIA?), this might make it more difficult for them to do so since ATI will have an even bigger leg up on nVidia by having no restrictions on fabs AND a cross licensing agreement. Even though a lot of x86 patents are due to expire, I7 is one technology that nVidia has no license for. This settlement may just have one important ramification/side benefit for both aMD and Intel in that it will make it even more difficult for nVidia to become a viable competitior in the x86 game.
    Reply
  • mutarasector - Saturday, November 21, 2009 - link

    The cross licensing agreement applies to x86 only. Neither company would benefit from licensing each others GPU technologies anyway. For example: Why would Intel want CrossfireX when it has already heavily invested in Lucid's Hydra technology? Or why would ATI want Larabee technology when they're already well ahead of the game with Fusion development?

    If anyone suffers from this settlement, I would think it would be nVidia. Since nVidia is sniffing around at the prospect of entering the x86 game (perhaps buying VIA?), this might make it more difficult for them to do so since ATI will have an even bigger leg up on nVidia by having no restrictions on fabs AND a cross licensing agreement. even though a lot of x86 patents are due to expire, I7 is one technology that nVidia has no license for. This settlement may just have one important side benefit for Intel in that it will make it even more difficult for nVidia to become a viable competitior in the x86 game.
    Reply
  • Ryan Smith - Thursday, November 12, 2009 - link

    This is NOT true. This is only an x86 cross-licensing agreement. There are no graphics patents involved. Reply
  • Ryun - Thursday, November 12, 2009 - link

    I doubt that AMD would just open up their ATI patents like that to Intel. It's one of the few things that set them apart from Intel. Reply
  • AlexWade - Thursday, November 12, 2009 - link

    Hopefully, with this extra cash, AMD can fire up the R&D team and once again produce a CPU as good as Intel. Which, of course, will require Intel to remain sharp. Two healthy CPU companies will mean great parts at great prices. This is a happy day. Reply
  • sandhuatdt - Thursday, November 12, 2009 - link

    What I read is that once AMD goes fabless, there will mushroom fabs in China that will do the manufacturing for them. First, there will be a race to bottom of the barrel amongst the fabs and then *original* CPUs will start showing up on ebay from the 2nd shift at these fabs :) Reply
  • erple2 - Thursday, November 12, 2009 - link

    This is something that I hadn't ever considered. Intel and AMD maintaining a stranglehold on the x86 CPU production market means that we might see quality of manufacture of x86 parts start to fall.

    However, given the other graphs that it takes BILLIONS of dollars to start up a fab, maybe that's a concern that won't play out.

    I'm more worried about a bad batch of 2nd shift x86 parts appearing at major retailers (or as major as newegg, microcenter or zipzoomfly are).
    Reply
  • - Thursday, November 12, 2009 - link

    Today’s news, though suprising in its attention to details was predictable. My contention over the past year was that AMD was preparing themselves for takeover and I believe concessions 1,2 3 & 4 (blastoff) do just that. I did not to go over these concessions in detail...yet

    asH
    Reply
  • - Thursday, November 12, 2009 - link

    on 2nd thought, how much is 49% of AMD worth now-a-days? lol
    asH
    Reply
  • camylarde - Friday, November 13, 2009 - link

    I can have my own processor company!! Plus they would need to pay me billions for me to start owning them ;-) sweet.

    ANd when they are mine, I would order them to... erm... finally create a gaming processor ;-)

    [/silly humour]
    Reply

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