Intel, we’re on to you

My apologies for the lengthy post; it’s most un-blog-like, but this is the only place for it. It states my position on AMD v Intel and sets up a lot of material on that subject that will follow in print and on-line.

On June 27, 2005, Advanced Micro Devices filed a a civil suit in Federal district court charging that Intel engaged in coercion to block AMD from fair access to the microcomputer market. Coercion being an insufficiently evocative term, I’ll borrow one from AMD’s filing: Intel’s been knee-capping OEMs (original equipment manufacturers; builders of x86 notebooks, desktops and servers) and resellers. With disturbingly consistent success, Intel has cowed businesses in the U.S. and worldwide, from Fry’s Electronics and Circuit City to HP and Sony, into joining Intel’s blockade preventing AMD’s access to Intel’s channels of sales and distribution.

Isn’t that business as usual for business? After all, journalists routinely use terms like “fierce” and “no holds barred,” along with other sports, nature and battle metaphors, to describe the efforts of players in the free market to acquire and maintain share. But in sports and in war, there are standards of fair behavior and a range of remedies to punish those who violate the rules and to compensate those who suffer as a result. We have always made sure that those with the advantage do not have leave to literally stop at nothing to protect it.

AMD is asking for time in front of a jury to prove that Intel did cross the line between aggressive marketing and unlawful restraint of trade. AMD’s filing is a surprisingly trim 48 pages long and is devoid of legal-speak, but it pulls no punches. This from its closing section:

Intel’s intentional, wrongful conduct resulted in the actual disruption of AMD’s relationships with these third parties [system manufacturers]. As set forth above, Intel’s conduct caused these third parties (i) to cease purchasing microprocessors from AMD, (ii) to limit their purchases of microprocessors from AMD, (iii) to abstain from purchasing microprocessors from AMD in the first instance, (iv) to restrict sales of products containing AMD microprocessors, (v) to abandon planned AMD offerings, (vi) to restrict distribution and marketing of planned AMD offerings, and (vii) to withdraw from participating in AMD product launches and promotions.

In other words, OEMs are dying to do business with AMD, but can’t because the cost of Intel’s retaliation always exceeds the value the OEM would derive from a relationship with AMD. It’s like having a boyfriend who swears he’ll kill you if you ever leave him, but hey, the choice is always yours.

For Intel’s part, its consistent line is that if customers wanted AMD, Intel would be powerless to keep AMD out of the market. Intel’s customers are OEMs. OEMs do want AMD, but as a monopoly, Intel has the power to control its customers through its control over their supply.

OEMs switch component suppliers frequently based on price, supply, incentives, cooperative engineering and marketing, and so on. Suppliers are played against each other to the OEM’s advantage, and given the commodity status of the component market, every new model is a jump ball for suppliers. The sole component that PC OEMs cannot purchase from an alternate supplier without suffering egregious financial harm is processors. AMD doesn’t stand a chance.

How does AMD do when it’s free to compete on merit? Very well. Taking facts from AMD’s complaint, AMD had about 22% of Japan’s total PC market share at the end of 2002. Intel flew over early in 2003, offering millions of dollars each to Japanese OEMs on the condition that they cut their ties to AMD or cap AMD’s share of their business to a single-digit level. Once Intel moved in, AMD’s share of the Japanese PC market dropped precipitously.

U.S. OEMs are nodding their heads; this is Intel’s MO. But something happened in Japan that hasn’t happened in the U.S. for reasons that I can’t fathom: The Japanese Fair Trade Commission investigated Intel’s Japanese operation and found Intel’s practices were in violation of Japan’s anti-monopoly act. Intel accepted the JFTC’s multiple findings of misconduct and must now undo all the blockades it set up to shut AMD out of the Japanese market.

If it’s so awful being under Intel’s thumb, why hasn’t some stalwart OEM with an ample bankroll told Intel to go screw itself? It’s been tried. What Intel can’t block up front it will thwart after the fact. AMD relates in its complaint that HP offered AMD an opportunity to put AMD processors in HP commercial desktop systems. HP, knowing that Intel would retaliate, asked AMD to help offset the cost of that retaliation. AMD agreed to give HP its first million CPUs free if HP would give them a chance; you see, AMD has never asked for a break or used its underdog status to claim it’s entitled to business with an OEM. HP wisely signed up and set about building and boxing. But according to AMD, Intel caught wind of the AMD-based desktop the day before it was to launch and took quick action. HP was instructed to withhold the 160,000 systems it had built from the channel the desktop was designed to target. Not surprisingly, HP didn’t build any more of those AMD desktops. If you can imagine it, a well-heeled OEM left 840,000 free processors in sealed crates rather than incur any more of Intel’s wrath.

AMD hasn’t failed to earn the business. It hasn’t failed to close deals. And this isn’t a case of “AMD says.” Those of us watching closely have seen AMD-equipped system models appear and then disappear from vendors’ product catalogs. AMD systems that exist are usually unpromoted and are usually allowed to lag behind AMD’s latest technology while Intel systems are constantly kept up to date. I maintain accounts with several distributors of computer components and I can see, just by pulling up lists of pricing and availiability of new AMD and Intel CPUs, who’s been good and who’s been bad in Intel’s eyes. That’s part of what I find so irksome: So much of what AMD claims is patently obvious. Intel’s been busted in the U.S. for anti-competitive dealings with AMD. Magazine columnists and Japan’s Fair Trade Commission were competent to handle the follow-up. Who the hell is minding the store in California (where the previous judgment against Intel was rendered) and Washington? AMD should not be the plaintiff here; it should be the government. But now that AMD has stepped to the plate, being left to shoulder this alone would bring shame to the agencies trusted to keep track of those with a history of misconduct.

With or without the backing it deserves, AMD’s filing will shake things up. The complaint rightly compares Intel’s behavior with that of Standard Oil. Intel’s behavior is closer to that of one time anti-trust convicts AT&T, Kodak and IBM. All rose to dominance on the creativity and drive of their designers and engineers. Anti-competitive efforts undertaken by management at these firms amount to a vote of no-confidence in the companies’ own technology and in the people who created it. Monopolistic tactics harm the market. But if that’s not motivation enough to shy away from such tactics, Intel should recognize how damaging it is to the morale of its technical staff. Intel may have the engineering talent to win the CPU battle on merit. Thanks to Intel’s control of the market, we can’t know how good they really are, and what’s worse, Intel’s own engineers can’t know how good they are. That’s got to be demoralizing.

I have pressed AMD’s case to readers for years. I’m proud of that. No InfoWorld reader can be a stranger to the era-defining marvel that is the AMD64 architecture or to the dirty tricks Intel has employed to block its uptake. I am proud of the tremendous positive response from readers–I don’t believe that other readers would have been so supportive. I’m proud as well of InfoWorld for staying with the AMD story even after others had dropped it.

This isn’t an awards show. It’s where the ugly work starts. Now that this story is back on everybody’s page one, the challenge is to use it as an opportunity to let people, especially system vendors, know the real cost of what Intel’s doing. It angers me when I think about how much farther PC technology would have advanced if AMD had been allowed to compete. Had Intel let the market decide, as Intel claims the market is already free to do, then perhaps it would already be done with AMD. Yet I am certain, and livid, that we have lost three years of computing progress to Intel. Let’s not lose any more.

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