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An analysis of Intel's response to AMD

The battle is joined

WHEN AMD FILED ITS ANTITRUST complaint against Intel this past summer, the document's contents quickly engendered a wealth of industry commentary and analysis. The complaint itself alleges that Intel has a monopoly in the x86 processor market, and has illegally used that position to lock PC makers into contract agreements. The specificity of the complaint, the fact that it referenced direct quotes from OEMs and retailers, and its timing all made for a massive shot across Santa Clara's bow.

On September 1st, Intel filed its own response to AMD’s complaint. Intel's response is, for the most part, a pro forma legal statement of denial. The only claims Intel admits to are perfunctory factual ones. Intel admits, for example, that AMD launched the Opteron in 2003, but denies the interpretive meaning AMD claims for that processor launch, strenuously denies that AMD is now in a position of technological leadership, and denies that it copied the x86-64 extension set.

Several of the positions Intel takes (and the reasons for its denial), are more interesting, and may be an early indication of legal strategies the chip giant intends to pursue. Instead of walking through the Intel response point by point, I've pinpointed certain key themes and counter-claims and will discuss them below.

AMD's problems are AMD's fault
Intel wastes no time stating where it thinks true fault lies: "the evidence will show that every failure and setback for which AMD today seeks to blame Intel is actually a direct result of AMD's own actions or inactions."

Intel further alleges that AMD's claims contradict the company's own statements and positions, as quoted below:

AMD is prosecuting this case for alleged antitrust violations that it claims have limited customer demand for its products, yet AMD says that it is "capacity-constrained" – which means that it sells every product it can make with its available manufacturing capacity. AMD recently claimed in a court document that Intel's competitive actions threaten it with becoming non-viable, yet AMD's Chairman and CEO recently told investors that AMD "is in the strongest position we've ever been in." Most significantly, AMD is seeking to prevent Intel from using discounts and other incentives that have the effect of lowering prices paid by customers, even though vigorous competition on price and continual improvements in consumer value are the very practices that the anti-trust laws are designed to protect.
Intel details how its strong investment into R&D and additional fabrication facilities have enabled it to grow, innovate, and expand production facilities, all in marked contrast to AMD, whose investment in manufacturing capacity it describes as "anemic." The decision to under-invest in fabrication plants is then linked by Intel to AMD's production troubles, with these troubles then used as an explanation for why other OEMs and manufacturers might be leery of AMD products.

The Intel brief notes:

when AMD is able to combine competitive products with reliable supply, the market responds. After dedicating a significant portion of its capacity to producing its recent Opteron processors, AMD has seen gains in its share of microprocessor sales in the profitable server segment. This is precisely what one would expect in a truly competitive industry.

Intel's technical innovation directly benefits consumers
Intel's response summarizes several decades of Intel innovation and the benefits those innovations have brought to the market.

Consumers and businesses enjoy performance and productivity benefits on desktop or laptop computers today that ten years ago were the exclusive domain of mainframe computers costing in excess of $1 million, and an entry level PC bought for under $300 today delivers the performance of a cutting-edge workstation that cost as much as 100 times more a decade ago. Since Intel invented the microprocessor in 1971, prices for microprocessors have declined and capabilities have increased as in no other industry.
Viewed in aggregate, there's no arguing that Intel has consistently delivered more powerful products at increasingly lower price points over the past 34 years. Increased competition from AMD over the past nine years has driven CPU prices lower and accelerated the introduction of new hardware (thus benefiting consumers more), which makes it all the more difficult for AMD to reasonably claim that Intel is a monopoly.

One of the key facets of a monopoly is that the business in question is legally found to be artificially inflating prices or limiting technological advancement to the detriment of consumers. Many of the allegations AMD levels at Intel are certainly damaging to Sunnyvale, but do they damage the market as a whole?

There is no separate market for x86 microprocessors and no barriers to entry
One reccurring theme in Intel's brief is that there is no separate market for x86 microprocessors. By denying AMD's claim that such a market exists, Intel is subsequently able to deny AMD's allegations regarding Intel's monopoly, market share, and total profit.

Alternatively, Intel admits that it competes with AMD in the sales of "general-purpose microprocessors," but offers little guidance on what criteria it uses to define this market. Read broadly, the general-purpose microprocessor market could include cell phones, PDAs, embedded systems, game consoles, and the entire gamut of PC computing, from budget systems to supercomputers.

By denying AMD's allegation that a separate and specific x86 processor market exists outside the general-purpose microprocessor market, Intel is obviously attempting to position itself as one supplier out of many, rather than as the dominator of a single, separate market.

This notion isn't as far-fetched as it might sound. In the booming cell phone industry, Texas Instruments is by far the largest player. Of the more than 680 million cell phones shipped in 2004, over half of them were powered by a TI-designed chip. Intel, in contrast, plans to ship at least 30 million cell phone processors this year. That's a substantial step upwards for Intel, but it also demonstrates a "general microprocessor" market where Intel is anything but the dominant player.

Intel admits that new fabrication facilities can cost $2.5 billion or more, but denies that fabrication plant costs shield Intel from competition, or that new entrants or parties seeking to expand capacity must build fabrication plants.