RealTime IT News

AMD's Need to Break Free

Analysis: In a famous Saturday Night Live skit, George Bush (the first) debates presidential hopeful Michael Dukakis. Doing his best Bush imitation, Dana Carvey stumbles, fumbles and blathers on trying to answer the moderator's question.

An articulate, if boring, Dukakis (aka Jon Lovitz) responds dejectedly "I can't believe I'm losing to this guy!"

AMD must know how the faux Dukakis felt. By all accounts the chipmaker has released its strongest product lineup in years, yet it can't break Intel's stranglehold on the market.

Now, it's taking on Intel in court, with two claims against Intel's Japanese subsidiary alleging the number one chipmaker violated Japan's antimonopoly act. It also filed suit against Intel in the U.S., saying it unlawfully maintains a monopoly in the x86 microprocessor market and pushes customers away from AMD.

It's not like Intel has been hitting on all cylinders. Analysts say the chip giant stumbled with the over-hyped Itanium, was late to market with dual core, and gave AMD an opening to provide better 32-bit compatibility in its 64-bit offering.

"For the last year to eighteen months AMD has had stronger product offerings (than Intel) on the desktop and servers, if not in mobile," says chip analyst Nathan Brookwood of Insight64. "One of things that motivated this suit had to be AMD saying to itself, 'If we can't gain market share with real product advantage how are we going to succeed in the long haul?'"

Research outfits such as Mercury Research peg AMD at about 10 percent share in revenue in the overall chip market and at about 17 percent of unit sales for microprocessors. Intel holds a commanding 82 percent market share of the global market, with VIA Technologies and Transmeta fighting over the balance.

"We could eke out an existence in the box Intel has us in, or do what we need to grow the company," says David Kroll, director of global communications at AMD.

He says AMD is holding back some information for trial that could prove damaging to Intel. "Our executives have gotten calls recently where OEMS looking at Opteron said they were going to lose $20 million in funds [from Intel] if they go with AMD."

Paul Otellini, Intel's president and CEO, has said in a statement that Intel disagrees "unequivocally" with AMD's claims. "Intel has always respected the laws of the countries in which we operate. We compete aggressively and fairly to deliver the best value to consumers. This will not change." The company expects the suit to be resolved favorably, like the other antitrust complaints it has faced.

It's important to clarify that even AMD isn't accusing Intel of anything inherently evil.

AMD's open letter to customers makes the following charges against Intel:

  • Forcing major customers to accept exclusive deals;
  • Withholding rebates and marketing subsidies as a means of punishing customers who buy more than prescribed quantities of processors from AMD;
  • Threatening retaliation against customers doing business with AMD;
  • Establishing quotas keeping retailers from selling the computers they want, and
  • Forcing PC makers to boycott AMD product launches.

    And then AMD adds an important caveat: "For most competitive situations, this is just business. But from a monopolist, this is illegal."

    In other words, as Intel itself has said in its defense, it competes aggressively like most successful business are expected to.

    For AMD to prove its case, it has to first prove Intel is a monopoly, and then prove it abused that monopoly status.

    "A monopolist can legally have contracts, offer rebates and discounts," says Robert Badal, who specialize in antitrust as a senior partner at Heller Ehrman. "This is a complex case and a very intense, factual undertaking. AMD will have to prove anti-competitive behavior. A rebate to a good customer could be lawful [or not] depending on the context."

    Breaking Free

    If AMD expects to win in court, then it is in for a long battle with a trial date not expected till late 2006 at the earliest. Meantime, AMD is taking its campaign to the streets with full-page newspaper ads explaining why it's pursuing the lawsuit. Some observers think that tactic is silly.

    "To take out ads about the case and use it as a marketing tool seems bizarre. It hurts their credibility," says Tim Bajarin, president of Creative Strategies. Bajarin thinks AMD's bigger problem is that it's too focused on competing straight up against Intel on a traditional "speeds and feeds" basis and should focus more on innovating in new markets like cell phones and entertainment devices.

    AMD counters that it simply has to get its message out much as various industry groups banded together publicly and in ad campaigns in the U.S. versus Microsoft case.

    "I laugh at some of the quotes I've seen that AMD is doing this for publicity," says AMD's Kroll. "Having seen the expense and effort to file a case like this, you absolutely don't do it for the publicity but to see a change in the marketplace. We are making serious allegations against a much larger company. To [get awareness] of a 48-page complaint we have to spread the word. Look at cases like Enron; public opinion can play a big role."

    AMD may have no other choice but to bring its suit. If the charges have merit, AMD will be in a battle to level a competitive playing field. If AMD loses, it will probably continue to fight for its healthy sliver of the marketplace based on its technology and aggressive pricing (though a victorious and perhaps emboldened Intel could well lead AMD to regret what it started).

    AMD's Kroll says the company is in this for the long haul. "We're not interested in a monetary settlement that doesn't change Intel's behavior." He says given the price performance advantages AMD has shown, it is curious why Dell doesn't use any of AMD's microprocessors, and that other leading PC makers keep their purchases to a minimum.

    Intel insists it competes fairly. Perhaps the pressure and publicity of this lawsuit over the next year and a half to two years (if it goes that long without settlement) will lead at the very least to less heavy handed deal-making by Intel. The result could be better deals for PC buyers and a chance for AMD to finally "break free."