How Globalfoundries Ended the Intel-AMD Suit
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Today's dramatic end to the protracted antitrust battle between Intel and AMD -- which concluded with a settlement under which Intel pays $1.25 billion to its smaller competitor -- may seem to some like an effort by the world's largest chipmaker to buy its way out rather than face the music in court.
During a conference call today with press and analysts, Intel (NASDAQ: INTC) CEO Paul Otellini faced just such accusations. (He responded that "98 percent" of antitrust cases are settled before they go to trial because they are so expensive and the outcome is never certain.)
The truth behind the settlement may be far more complex, however, with evidence that both AMD and Intel were motivated to get the case resolved quickly.
Underlying the deal was a complicated relationship between two fierce competitors who, in spite of their bloodthirsty rivalry, are thoroughly interconnected -- and in some ways, dependent on each other.
As it turns out, central to the settlement was AMD's (NYSE: AMD) move earlier this year to spin off its fabrication plants, Globalfoundries, in a bid to distance itself from the chip manufacturing business.
Coupled with a 2001 deal that saw Intel licensing its intellectual property to AMD, it's no surprise that the creation of Globalfoundries raised eyebrows at Intel. By spinning off Globalfoundries -- in which AMD still held a stake -- to a new majority owner, Advanced Technology Investment Company, AMD had in effect transferred Intel intellectual property to a third party, a no-no under the 2001 licensing agreement.
Intel objected immediately to the creation of Globalfoundries, accusing AMD of violating the two firms' patent agreement.
"Intel really had them good with that one," Martin Reynolds, research vice president with Gartner, told InternetNews.com. "There was nothing AMD could do to get Global separated, which made it difficult for them to show the financial value of the company. So they created this funny ownership structure to give them controlling interest of the company while not having a financial control."
ATIC has a 55 percent ownership in Globalfoundries while AMD has 36 percent share, but AMD had to keep Global on its books to satisfy the patent license. Now, AMD "can deconsolidate Global from its accounting so it can attract more investment," Reynolds said.
And it was when Intel and AMD sat down to discuss how to settle the issue of Global that this whole antitrust agreement was eventually reached.
"We sent a notification of breach of contract," Intel spokesman Chuck Mulloy told InternetNews.com. "Once we did that, it triggered a mechanism for dispute resolution and that's how we got to here."
The agreement had been set to expire at the end of the year, and it was important for AMD to maintain it. Without it, AMD could keep making chips with old Intel patents but it would no longer have access to any new patents Intel developed, and AMD did not want to be out of the loop on new developments.
The agreement is now renewed for five years.
As part of the settlement, Intel will drop its claims that AMD breached its patent cross-license. That leaves AMD free to have its chips made by Globalfoundries or anyone else, Intel Chief Administrative Officer Andy Bryant said during today's conference call.
Also as part of the settlement, and to prevent something like all this litigation from happening again, the two companies have set up a plan to meet once every quarter to air any grievances they have.
"This is for either party to say if you are unhappy with us or anything we are doing, call us and let's bring it up in the meeting," Mulloy said.