AMD Settlement Frees Intel to Address Bigger Threats

Today, Intel and AMD announced that they are dropping all existing litigation between them -- AMD's persistent attacks on what it claims are Intel's predatory sales practices and Intel's counterclaims of AMD's unlawful appropriation of Intel intellectual property transferred to GlobalFoundries when AMD divested its fabs to this joint venture. The legal wrangling has been an obsession for AMD and a diversion for Intel for several years now, and neither can afford to engage in such maneuvers anymore. The settlement is a win for both, although it may not have much effect on Intel's continuing governmental antitrust investigations around the world, and the win-win may be a little different than most analysis has indicated.

Intel's payment to AMD of $1.25 billion may be seen by some as an admission of guilt that it indeed was behaving badly, as AMD claimed. However, I see this another way, namely that Intel is offering AMD a badly needed cash infusion -- a lifeline to make sure it stays afloat. Strategically, Intel cannot afford to let AMD go out of business. It needs the competition -- both to make sure it stays "paranoid" enough to design and manufacture industry-leading chips (look at what happened to Intel the last time AMD was not competitive), and also to avoid the reality of complete monopolization of the PC market and all the additional scrutiny it would entail (yes, even more than Intel is already receiving ). AMD gets much-needed cash with which it can complete its transition to a fabless semiconductor company and to complete designs of its next-generation processor and graphics chips to make it more competitive. So this is a win-win for both companies.

This is also a big win for Intel because it now gets to focus on its real long-term threat. No, it's not AMD -- its ARM Holdings and all of the licensees of the ARM chip designs (e.g., Qualcomm, TI, Freescale, Nvidia, Samsung, Marvel). While PC and server chips are its bread and butter today, Intel rightly understands that the sheer number of personal and consumer intelligent computing devices that will be built over the next several years will far outnumber what is sold in the traditional PC marketplace. These devices -- smartphones, netbooks, mobile Internet devices, home entertainment, smart appliances, personal entertainment, smart power devices, smart autos, and on and on ad infinitum, and all connected to the Internet -- are not currently the domain of Intel and its i86 architecture. There indeed are a variety of processor chips employed in these markets, but by far the biggest share of smartphone and MID-class devices is being captured by the ARM architecture. This poses a long-term existential threat to Intel, just as the PC did to the minicomputer and mainframes of earlier times. So Intel must compete in this space to stay healthy long term. That's why Atom and its derivatives are so critical to its future.

Intel also wins by licensing its intellectual property to the GlobalFoundries as it now constitutes another fab it can access should production needs require it to do so (and TSMC can't adequately provide for Intel's requirements). While we don't expect immediate use by Intel of this channel, it does represent a needed "overflow capacity" should demand for Atom suddenly exceed planned uptake, which could happen if the next generation of chips really do provide the competitive position against ARM that the current Atom version can't. So this is both a win for Intel and a potential win for GlobalFoundries as well (which has been struggling to fill its fabs).

Bottom line: The settlement of this ongoing litigation is a win for Intel on a number of fronts, and a win for AMD as well. Ultimately, it will mean better and more intelligent devices and a new competitive environment that will help the consumer and keep prices competitive. But it will also help Intel remain a dominant player in all aspects of the computer chip marketplace in both current and future devices. Viewed in this way, the $1.25 billion payment to AMD from Intel is an expense well spent.

Jack Gold is the founder and principal analyst at J.Gold Associates , an information technology analyst firm based in Northborough, Mass., covering the many aspects of business and consumer computing and emerging technologies.

This story, "AMD Settlement Frees Intel to Address Bigger Threats" was originally published by Computerworld.

To comment on this article and other PCWorld content, visit our Facebook page or our Twitter feed.
Shop Tech Products at Amazon
Notice to our Readers
We're now using social media to take your comments and feedback. Learn more about this here.