Intel (INTC) couldn't afford to let it drag on. The world's largest chipmaker announced on Nov. 12 that it would pay $1.25 billion to resolve allegations by Advanced Micro Devices (AMD) that its larger rival competes unfairly in the market for computer chips.
On one hand, the agreement lets Intel and AMD move past the conflict that's put the companies at legal loggerheads for years, and it may help Intel resolve ongoing antitrust tussles with U.S. regulators. But a more important benefit of the agreement is that it lets Intel turn attention to what may become an even greater headache in the coming years: the challenge posed by ARM Holdings (ARM.L), maker of the technology used in chips running in a widening array of mobile devices, including the Apple (AAPL) iPhone. Intel "now gets to focus on its real long-term threat," says Jack Gold, founder of Gold Associates, a research firm. "No, it's not AMD—it's ARM Holdings."
A host of chipmakers, including Qualcomm (QCOM), Texas Instruments (TXN), Freescale (FSL), and Nvidia (NVDA), license ARM technology to create chips for handhelds, phones, and other mobile devices. ARM-based chips are valued because they consume less power than the x86-based chips, which are made by Intel and AMD and power most of the world's computers and servers, the machines that run corporate networks.
PC and server chips make up the majority of industry profits today. Still, demand for server chips may diminish as businesses replace large numbers of aging servers in data centers with a single server powered by fewer, more powerful chips. Meantime, demand is surging for mobile devices, many of which don't require the computing power of relatively pricey x86 chips. Getting past the distraction of the AMD lawsuits helps Intel place greater emphasis on sales in markets now being inundated with ARM technology, says TBR analyst John Spooner. "For some time, Intel has been preparing to reduce its reliance on the PC and server processor market, which now supplies more than 90% of its quarterly revenue," Spooner says. "The chipmaker has been realigning itself to expand its revenue base into graphics, handsets, and consumer electronics."
Countering Claims of Monopolist Practices
The benefits of Intel's agreement don't end there. Through the settlement with AMD, Intel silences the loudest voice accusing it of abusive behavior while at the same time keeping alive one of its most formidable competitors. The settlement in effect subsidizes AMD's plan to reduce debt, spin off cash-intensive manufacturing operations, and boost its research and development on new chips. Over time, that means a stronger AMD and helps Intel counter claims it wields too much power in the industry, says Richard Doherty, a director at market researcher Envisioneering Group. "They can argue it helps the whole league if you have two teams playing well," Doherty says.
Historically the companies thrive under pressure from each other, with engineers at one racing to top the archrival's designs. Even now, Intel and AMD are duking it out for the lead in combining computing and graphic-intensive functions onto a single chip. Neither expects to begin selling such a product until late 2010 at the earliest.
On one hand, the agreement lets Intel and AMD move past the conflict that's put the companies at legal loggerheads for years, and it may help Intel resolve ongoing antitrust tussles with U.S. regulators. But a more important benefit of the agreement is that it lets Intel turn attention to what may become an even greater headache in the coming years: the challenge posed by ARM Holdings (ARM.L), maker of the technology used in chips running in a widening array of mobile devices, including the Apple (AAPL) iPhone. Intel "now gets to focus on its real long-term threat," says Jack Gold, founder of Gold Associates, a research firm. "No, it's not AMD—it's ARM Holdings."
A host of chipmakers, including Qualcomm (QCOM), Texas Instruments (TXN), Freescale (FSL), and Nvidia (NVDA), license ARM technology to create chips for handhelds, phones, and other mobile devices. ARM-based chips are valued because they consume less power than the x86-based chips, which are made by Intel and AMD and power most of the world's computers and servers, the machines that run corporate networks.
PC and server chips make up the majority of industry profits today. Still, demand for server chips may diminish as businesses replace large numbers of aging servers in data centers with a single server powered by fewer, more powerful chips. Meantime, demand is surging for mobile devices, many of which don't require the computing power of relatively pricey x86 chips. Getting past the distraction of the AMD lawsuits helps Intel place greater emphasis on sales in markets now being inundated with ARM technology, says TBR analyst John Spooner. "For some time, Intel has been preparing to reduce its reliance on the PC and server processor market, which now supplies more than 90% of its quarterly revenue," Spooner says. "The chipmaker has been realigning itself to expand its revenue base into graphics, handsets, and consumer electronics."
Countering Claims of Monopolist Practices
The benefits of Intel's agreement don't end there. Through the settlement with AMD, Intel silences the loudest voice accusing it of abusive behavior while at the same time keeping alive one of its most formidable competitors. The settlement in effect subsidizes AMD's plan to reduce debt, spin off cash-intensive manufacturing operations, and boost its research and development on new chips. Over time, that means a stronger AMD and helps Intel counter claims it wields too much power in the industry, says Richard Doherty, a director at market researcher Envisioneering Group. "They can argue it helps the whole league if you have two teams playing well," Doherty says.
Historically the companies thrive under pressure from each other, with engineers at one racing to top the archrival's designs. Even now, Intel and AMD are duking it out for the lead in combining computing and graphic-intensive functions onto a single chip. Neither expects to begin selling such a product until late 2010 at the earliest.
