Intel to pay AMD $1.25billion
Just reading through the details of the complaint against Intel and there is some pretty mad reading. A $1.25billion payment seems mickeymouse given the profits they have been posting over the years and those profits were posted on the back of poor practice. AMD's share price has jumped, but sure what Intels has done.
Anyhoo some of the juicy details;
One of the really facinating bits was the power that Intel had over the major PC manufacturers. Intel could subsidise one (Dell) over another (HP) and impact severly on their shareprice as a result.
- Intel paid hundreds of millions – in some cases billions – of dollars in “rebates (bribes).” to OEM manufacturers to incentivise their continued exclusinve use of Intel chips.
- At the same time, Intel threatened OEMs with retaliation if they persisted in dealing with AMD
Michael Dell, founder and CEO of Dell, Intel’s largest customer, pointed out in a February 2004 internal email that not even Microsoft could exercise the pricing power which Intel has displayed: “[Intel] profits in the 2nd half of 2001 were $1.397B on revenues of $13.528B. In the 2nd half of 2003 they were $4.885B on revenues of $16.574B. In other words their sales went up 22.5% and their profits went up 350%! Or said another way their revenues went up $3.046B and their profits went up $3.488B!! Not even Microsoft can do that. In other words these guys have massive operating leverage.”
- The OEMs, struggling with narrow profit margins and fearing that Intel would retaliate by subsidizing their competitors to undersell them, often conformed to Intel’s demands. For example, in exchange for billions of dollars in rebate payments and other benefits, Dell agreed not to sell any AMD products from 2001 to 2006.
- HP Agreed (in exchange for threats and money) to limit their AMD sales to 5%.
- IBM agreed (in exchange for threats and money) to cancel one AMD branded project
Intel’s customers are constantly reminded where their primary loyalty should lie. For example, in March 2006, Intel’s CEO Paul Otellini received a courtesy “heads-up” from an HP executive that HP was sponsoring an advertisement featuring HP’s relationship with AMD and the theme of customer choice. Otellini reacted: “So, … why did you feel compelled to do this? It is certainly insulting to us and I do not see how it helps you…. If we are your key partner, this is nothing but a slap at us … I really don’t want to get in a pissing contest over this … But running an ad touting 10 years with amd [sic] and ‘choice’ is not the behavior of someone who wants to bring our two companies together.”