ALKHOBAR, 5 July 2005 — Most consumers in Saudi Arabia would tell you that Intel is the only company they know that makes microprocessors for PCs. The “Intel inside” program has had considerable success at communicating directly with buyers in the Kingdom as well as globally. Intel has set up direct representation in Saudi Arabia and has been aggressive in promoting its brand. There’s nothing wrong with such tactics. In fact, these are the kind of actions the local market is constantly demanding from international vendors and the fact is that the response from most vendors is generally negligible. So Intel has done its part, supported and educated the market, and now the time has come to see if the company’s efforts will be enough to help Intel maintain its massive market lead.

The truth is that there are other companies that make microprocessors. One of them, Advanced Micro Devices (AMD), has filed several legal actions against Intel claiming unfair competition. One lawsuit, an antitrust complaint, was filed on June 27 by AMD’s lawyers against Intel in US Federal District Court for the District of Delaware. The 48-page complaint explains in detail how AMD believes that Intel has unlawfully maintained its monopoly in the x86 microprocessor market by engaging in worldwide coercion of customers from dealing with AMD. The complaint identifies 38 companies that AMD claims have been “victims” of coercion by Intel — including large-scale computermakers, small system-builders, wholesale distributors and retailers, through seven types of illegality across three continents.

AMD’s complaint, drafted by AMD’s lead outside counsel, Charles P. Diamond of O’Melveny & Myers LLP, details numerous examples of what Diamond describes as “a pervasive, global scheme to coerce Intel customers from freely dealing with AMD to the detriment of customers and consumers worldwide.” According to the complaint, Intel has unlawfully maintained its monopoly by, among other things:

• Forcing major customers such as Dell, Sony, Toshiba, Gateway and Hitachi into Intel-exclusive deals in return for outright cash payments, discriminatory pricing or marketing subsidies conditioned on the exclusion of AMD.

• Forcing other major customers such as NEC, Acer and Fujitsu into partial exclusivity agreements by conditioning rebates, allowances and market development funds (MDF) on customers’ agreement to severely limit or forego entirely purchases from AMD.

• Establishing a system of discriminatory and retroactive incentives triggered by purchases at such high levels as to have the intended effect of denying customers the freedom to purchase any significant volume of processors from AMD.

• Threatening retaliation against customers for introducing AMD computer platforms, particularly in strategic market segments such as the commercial desktop.

• Forcing PC makers and tech partners to boycott AMD product launches or promotions.

• Abusing its market power by forcing on the industry technical standards and products that have as their main purpose the handicapping of AMD in the marketplace.

These are the highlights of AMD’s lawsuit. To view the full text of the complaint, please visit http://www.amd.com/breakfree.

“Everywhere in the world, customers deserve freedom of choice and the benefits of innovation — and these are being stolen away in the microprocessor market,” said Hector Ruiz, AMD chairman of the board, president and chief executive officer. “Whether through higher prices from monopoly profits, fewer choices in the marketplace or barriers to innovation — people from Osaka to Frankfurt to Chicago pay the price in cash every day for Intel’s monopoly abuses.”

The Microsoft Windows, Solaris and Linux families of operating systems run on x86 microprocessors. Even Apple, a pioneer of the PC and one of the industry’s enduring innovators, announced that it would switch exclusively to x86 processors to run Mac OS software beginning in 2006. Intel’s share of this critical market currently counts for about 80 percent of worldwide sales by unit volume and 90 percent by revenue, giving it dominant market power.

The US litigation followed a recent ruling from the Fair Trade Commission of Japan (JFTC), which found that Intel abused its monopoly power to exclude fair and open competition, violating Section 3 of Japan’s Antimonopoly Act. These findings revealed that Intel deliberately engaged in illegal business practices to stop AMD’s increasing market share by imposing limitations on Japanese PC manufacturers. Intel did not contest these charges. The European Commission has stated that it is also pursuing an investigation against Intel for similar possible antitrust violations and is cooperating with the Japanese authorities.

“You don’t have to take our word for it when it comes to Intel’s abuses; the Japanese government condemned Intel for its exclusionary and illegal misconduct,” said Thomas M. McCoy, AMD executive vice president, legal affairs, and chief administrative officer.

Ruiz, McCoy and Diamond discussed the details of the antitrust complaint against Intel last Tuesday in a conference call with journalists from around the world. During the call the idea that AMD stands for fair and open competition was emphasized repeatedly. AMD did make itself sound as if it were David taking on Goliath for the common good. One truth is that if AMD does win the lawsuit, the company’s shareholders will certainly be served well by the filing. But that outcome is far from certain and a long, expensive, winding road lies ahead.

It will be hard to prove that consumer’s have been harmed by Intel’s tactics as the price of computers continues to fall. And don’t imagine that global PC vendors have welcomed the lawsuit. Intel pays a significant portion of the advertising costs for any vendor that participates in the “Intel Inside” program. This is important in an industry where margins are paper thin. As part of its lawsuit, AMD arranged to have all the vendors’ records subpoenaed to ensure their cooperation.

Intel’s President and CEO Paul Otellini made the following comment in response to AMD’s lawsuit: “Intel has always respected the laws of the countries in which we operate. We compete aggressively and fairly to deliver the best value to consumers. This will not change. Over the years, Intel has been involved in other antitrust suits and faced similar issues. Every one of those matters has been resolved to our satisfaction. We unequivocally disagree with AMD’s claims and firmly believe this latest suit will be resolved favorably, like the others.”

While Intel was disagreeing with AMD’s US lawsuit, a new front was opening up in the legal war between the two companies. On June 30, AMD Japan filed two claims against Intel’s Japanese subsidiary, Intel K.K., in the Tokyo High Court and the Tokyo District Court for damages arising from violations of Japan’s Antimonopoly Act. The suit in the Tokyo High Court seeks $50 million in damages, following on the JFTC’s findings in its March 8, 2005 Recommendation that Intel K.K. committed violations of the Antimonopoly Act.

An additional suit filed at the Tokyo District Court level sought to recover millions of dollars in damages for various anticompetitive acts. These anticompetitive acts had the effect of interfering with AMD Japan”s right to engage in normal business and marketing activities. In the complaint, AMD Japan points to the following specific examples of anticompetitive actions taken by Intel:

• Instructing a Japanese PC manufacturer to remove from its product catalog and Internet website all computer models using processors made by AMD, in exchange for providing a large amount of funds to that manufacturer.

• Putting pressure on an AMD customer that was scheduled to attend a new product launch of AMD products. The customer eventually had to cancel its attendance at the new product launch.

• Interfering with a joint promotional event being held by AMD and a customer to promote PCs using a new processor developed by AMD. Just before the promotional event was scheduled to take place, Intel purchased all the PCs that had AMD processors and replaced them with PCs using Intel processors. Intel K.K. provided a large amount of funds to this customer as an incentive to cooperate in this last-minute interference.

Why is all this important?

To answer that question Arab News called on Martin Hingley, Group VP, European Systems Group, IDC. He discussed some of the historical facts of the computer industry, pointing out that 30 years ago all that existed were vertically integrated computer companies. If a business wanted to change their computer supplier, mainframe back then, it was necessary to change everything that came with the computer. Then 20 years ago there was a move to a horizontal market and consumers started looking at hardware and software in separate layers. People thought this was great because hardware and software from different vendors could be used to create an IT system.

“If you take the issue of choice, you were concerned that you were locked in and paying too much in the vertically integrated world. But over time if the number of suppliers in the horizontal layer goes down to one, you get locked in the horizontal layer as well,” explained Hingley. “The two vendors who I would say are problematic are Microsoft and Intel. Intel has such a high proportion of the desktop market in terms of value. If you end up with a single vendor who has a market share of 80 percent in one of these horizontal layers there are bound to be some issues.”

And those issues would probably be significant.

“If you only have a single vendor, they might not always make decisions from a price point of view that would be in the customer’s interest — or a technology point of view,” Hingley said. “This point could be debated in the speed that Intel moved into bringing 64-bit technology to the market after AMD made its move. I actually think that the choice of chip for a customer is more important than the choice of software because software markets tend to move faster. In the end, the strategic reason that users want to hold off from having a single vendor own one of these horizontal layers is that there might be things coming up technologically speaking that would be of benefit. When you standardize around a technology it stops a lot of potential innovation.”

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