Analysis: AMD takes gloves off in battle with Intel

The antitrust suit alleges ¿knee-capping' efforts by rival

The gloves have finally come off in the ongoing battle between Advanced Micro Devices Inc. and Intel Corp.

AMD today announced details of an antitrust lawsuit it has filed against Intel, saying its larger rival abused its monopoly position to stifle competition and maintain its dominance of the microprocessor market (see Update: AMD files broad antitrust suit against Intel). The suit was filed in U.S. District Court for the District of Delaware.

Central to the allegations is a recent report by the Japan Fair Trade Commission (JFTC) on Intel's business practices in that country. In several places, AMD's 48-page complaint points to findings in the JFTC report, which was released in March at the end of an 11-month JFTC investigation that found Intel had contravened Japan's Antimonopoly Act.

"The JFTC recommendation was one of the triggers," said Mari Hayashi, a spokeswoman for AMD in Tokyo.

In that report, the JFTC said Intel had offered five major PC vendors rebates and funds in return for using only Intel processors or capping the number of processors from competitors at 10%. As a result, Intel's market share in Japan grew from 76% to 89% between 2002 and 2003, the report said.

In response, Intel issued a statement saying it disagreed with JFTC's findings, but ultimately accepted the report and chose not to officially challenge its findings.

AMD's antitrust complaint paints a picture of Intel as an industry bully that used a combination of financial incentives and threats -- called "knee-capping" in the complaint -- to keep customers from buying from AMD.

"For a long time there have been questions over co-marketing money, whether Intel is using this to offer deep discounts and restrict this to companies that stock exclusively Intel," said Chris Ingle, a consultant at market analyst IDC.

In the complaint, AMD alleged that Supermicro Inc., a San Jose-based company that makes high-end servers, was so concerned that Intel would discover its plans to develop a server based on AMD's Opteron chip that it secretly moved the development team to a building behind its main manufacturing facility. When the server was finally released, Supermicro limited distribution to 60 customers and promoted it with a brochure marked "secret and confidential" that did not mention Supermicro by name.

A search of Supermico Inc.'s Web site today did not turn up any reference to products based on the Opteron.

The AMD complaint also provides a glimpse at the lengths to which AMD was willing to go in order to capture new business. In 2002, when AMD tried to offer chips for Hewlett-Packard Co. to use in its Evo commercial desktop line, HP asked for a $25 million quarterly fund to compensate it for expected retaliation from Intel, the complaint said. Instead, AMD agreed to provide the first 1 million processors to HP at no cost, it said.

When HP disclosed its AMD product plans on the eve of the launch, Intel told HP it considered the entry of AMD into the Evo line a "Richter 10" event, according to the complaint. As a result, HP took only 160,000 of the free processors, it said.

There are also allegations that Intel offered cash to persuade companies not to do business with AMD. For example, Gateway Inc. CEO Ted Waitt allegedly told an AMD executive in 2001 that his company had been offered "large sums" not to do business with the company, the complaint said.

"I have to find a way back to profitability. If by dropping you, I become profitable, that is what I will do," Waitt said, according to the complaint.

Shortly afterward, Gateway issued a press release stating it would offer only computers based on Intel processors, which it did from 2001 until 2004, the complaint said.

In 2004, AMD sought to rebuild its relationship with Gateway but didn't get very far, according to the complaint. Gateway used AMD chips in a line of PCs made for U.S. electronics retailer Circuit City Stores Inc. However, Gateway executives later told AMD they had been beaten into "guacamole" by Intel in retaliation, the complaint alleged, noting that AMD remains locked out of the majority of Gateway's product lines.

The AMD complaint also delves into industry history with a mention of Compaq Computer Corp., which was acquired by HP in 2001. It alleged that Intel withheld delivery of server chips to Compaq in retaliation for Compaq doing business with AMD. As a result, Compaq CEO Michael Capellas told an AMD executive that his company had to stop buying chips from AMD, saying "he had a gun to his head," according to the complaint.

Capellas isn't the only senior executive alleged to have been threatened with retaliation by Intel for dealing with AMD.

In September 2003, former Intel CEO Craig Barrett, now the company's chairman, allegedly paid a visit to Acer Inc. Chairman Stan Shih and other senior Acer executives, where he threatened the Taiwanese PC vendor with "severe consequences" if it publicly supported AMD's launch of the Athlon64 processor, the complaint said. As a result of Barrett's visit, Acer decided not to participate in the Athlon64 launch and delayed the launch of its Athlon64-based PCs.

Acer President J.T. Wang later said there was nothing unusual about Intel's threats, except that the threats were "usually done by lower ranking managers," not the company's CEO, according to the AMD complaint.

Peter Sayer of the IDG News Service contributed to this report.

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