Intel will pay AMD $1.25 billion to settle all their legal disputes

AMD has been competing with Intel as a chip supplier to the PC and server markets, and by taking legal action against the company. Now an out-of-court settlement will lead to what AMD says is "a new era" -- but consumers can expect to pay

In a surprise move, Intel has agreed to pay AMD $1.25 billion and to abide by an agreed set of rules for its business conduct in return for settling their long-running legal complaints. AMD will drop "all pending litigation" including cases the US and Japan, and "withdraw all of its regulatory complaints worldwide" -- though this won't stop any government cases. The two chipmakers also renewed their patent cross-licensing technology agreement for five years.

Intel's press release said:

In a joint statement the two companies commented, "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."

AMD chief executive officer Dirk Meyer said in a statement: "Today marks the beginning of a new era... one that confirms that the game has changed for AMD."

AMD has been shopping its claims around the world's anti-trust regulators for many years, but with increasing success. The European Commission punished Intel with the largest antitrust fine in its history (€1bn) for "anticompetitive practices" such as "illegal rebates" -- a ruling that Intel is appealing.

Recently, New York attorney general Andrew Cuomo jumped on the bandwagon by filing a case in the US. (Intel is based in California while, coincidentally, AMD's Global Foundries spin-off is building a very expensive new chip factory in New York State.)

AMD has had liquidity problems and has reported losses in its last 12 financial quarters.

The Wall Street Journal noted that: "The settlement was sorely needed for AMD, which has struggled with mounting losses and high debt levels related to its acquisition of graphics-chip maker ATI Technologies."

Some analysts see the settlement as being to Intel's benefit. Bloomberg reported:

"AMD is going to be perceived as the big winner here, but the bigger winner is Intel," said Hans Mosesmann, an analyst at New York-based Raymond James & Associates. "Instead of writing a check for $10 billion over time, they write one for $1 billion."

"AMD gets cash, which is nice. But this doesn't change anything," Mosesmann said. "Their chips are not faster or cheaper all of a sudden."

The settlement is unlikely to make much difference to consumers: both companies make processors that run the same standard operating systems and consumers are generally unable to tell the difference between them. However, restricting Intel's ability to offer discounts and rebates to PC manufacturers could lead to an increase in effective chip prices.

Higher prices might enable AMD to stop selling chips at a loss, but should also increase Intel's profits. That, and saving perhaps $100m a year in legal expenses over the next 5-10 years.

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