The fact that Intel and AMD have reached a $1.25 billion agreement and established a pact to cross-license each other’s patents for the next 5 years should not come as any surprise. AMD needs the cash infusion and Intel needs…well, Intel needs AMD. Seems like a win-win.
Within the processor industry, Intel occupies the role of the dominant virtual monopoly—similar to the role Microsoft plays in the operating system, office productivity, and web browser markets. Intel is more or less the de facto standard for PC processors at 70 percent of the market, and AMD is a distant second with remaining 30 percent.
With great power, comes great responsibility. Being the king of the hill and enjoying such a dominant stake in an industry also makes Intel a prime target for allegations of unethical business practices, and general antitrust accusations. When you’re not king of the hill it is easy to rationalize that your competition must be doing something shady to beat you the way they do.
In a joint statement, Intel and AMD stated “While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development.” Translation: let’s end all this bickering and get back to the status quo.
The settlement with AMD ends all pending litigation between Intel and AMD, but it doesn’t mean that Intel is out of the woods yet. AMD may have fired the first shots, but now the European Union, the New York state attorney general, and the FTC are all in on the act and there is no guarantee that those disputes will end just because AMD and Intel decided to play nice.
Intel CEO Paul Otellini maintains that Intel has not violated any laws or broken any rules of conduct. He remains hopeful that the settlement with AMD will expedite the end of other pending legal matters. “All of these comments and actions from regulators have come from the complaints between these two private parties, and I think [the settlement] should provide some level of comfort between the regulators.”
To be fair, capitalism is a no-holds barred sort of competition. The goal is to crush all competition and make as much money as possible. However, companies like Intel also have to balance that drive to dominate against antitrust and monopoly concerns. The resulting tightrope act is along the lines of ‘crush all opponents, but make sure you leave at least one standing so there is competition.’
Not only would being the only player in a market be a monopoly by definition, it also takes away any pride and glory about being on top. Being number one only matters if there is a number two. If the New York Yankees were the only baseball team in Major League Baseball, nobody would care that they are the ‘world champions’.
Once upon a time there was a third competitor. The battle was between Intel, AMD, and Cyrix. Cyrix eventually folded its tent and faded away, leaving Intel and AMD to fight it out.
Intel needs AMD to stay in the fight to maintain a valid argument against antitrust accusations. Intel will continue to aggressively compete and try to squash AMD…just not out of existence.