Intel Corp. (NASDAQ: INTL) is paying Silicon Valley rival Advanced Micro Devices Inc. (NYSE: AMD) $1.25 billion to squash a legal battle over Intel's sales tactics, according to Associated Press.
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The legal battle has caused a rift that led to antitrust charges against Intel in several countries and was headed toward a costly and nasty trial next year.
The settlement announced Thursday between Intel and AMD -- which make essentially all the microprocessors that serve as the brains in today's personal computers -- doesn't let Intel off the hook. It still has to deal with the antitrust charges that AMD pressed governments to file.
The biggest case is in Europe, where regulators have fined Intel a record $1.45 billion over what they described as Intel's illegal tactics to bully PC makers into choosing Intel chips over AMD's. EU spokesman Jonathan Todd said that the European Commission "takes note" of Intel's settlement with AMD but that it does not change Intel's duty to comply with European antitrust law.
Intel is also fighting an $18.6 million fine in Korea, and a federal lawsuit filed last week by New York Attorney General Andrew Cuomo, who accused Intel of abusing its market dominance to "rule with an iron fist." The U.S. Federal Trade Commission also is investigating.
The settlement does allow Intel to duck a trial set for March in Delaware over a federal lawsuit AMD filed in 2005.
The lawsuit reflected AMD's long-standing accusation that Intel has kept AMD's market share from rising no higher than about 20 percent by threatening PC makers and offering financial incentives for avoiding AMD chips. AMD's lawsuit quotes one manager from Toshiba comparing Intel's incentives to "cocaine." It also cites executives from Gateway complaining that Intel's threats of retaliation for working with AMD beat the executives "into guacamole."
Intel has defended its rebates to big Intel customers as legitimate -- and good for PC buyers who enjoyed lower prices.
AMD shares soared $1.19, or 22 percent, to $6.51 in morning trading. Intel shares fell 6 cents to $19.78.
The settlement has precedent. In 1995 the companies, which are headquartered mere miles from each other, made peace over different issues. That deal gave AMD the right to keep producing chips based on a design known as the "x86 architecture," which both companies still use today.
A trial over the latest issues could have been dangerous for both companies.
Intel risked heavy penalties if it lost. A verdict against it also could have increased the momentum for cases like those that have come in Europe, New York and Korea.
Meanwhile, AMD, which is struggling to whittle down $3.7 billion in debt and pull off a major restructuring, could have found the trial prohibitively expensive. The companies have not said how much they have spent on legal fees related to the case, but it's easily in the tens of millions of dollars.
Intel also had a cudgel against AMD. AMD's restructuring has included the spinoff of its manufacturing arm to cut costs, a move that Intel says violated the x86 licensing agreement. AMD argued the spinoff didn't need a new license to make chips that incorporated Intel's technology, but Intel argued it did.
That spinoff is critical to AMD's turnaround after losing billions of dollars while trying to compete dollar-for-dollar against Intel in manufacturing, a fight AMD ultimately conceded it couldn't win.
Under the terms of the new agreement, AMD and Intel entered into a new, five-year cross-licensing deal. Intel dropped claims that AMD breached the earlier agreement. And AMD is dropping all litigation against Intel and withdrawing its regulatory complaints worldwide.
Intel has also agreed to "abide by a set of business practice provisions" as part of the settlement, but the companies didn't specify what that means.
Intel said that with the $1.25 billion settlement, its spending in the current quarter will now be $4.2 billion rather than the $2.9 billion it had previously forecast. It also expects its tax rate to be 20 percent rather than 26 percent. All other expectations are unchanged, Intel said.
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