Memory-lapsed chip battles

As observers await the European Commission’s verdict on allegations of anti-competitive behaviour brought by Advanced Micro Devices (AMD) against arch-rival Intel in 2000, the gloves have come off in a parallel investigation on the other side of the Atlantic.

There was never much love lost between the two chipmakers, but news at the beginning of this week that Intel had lost key evidence requested by a US district court left AMD white with rage.

Internal emails that should have been presented to the US District Court of Delaware as part of a two-year-old preliminary hearing went missing as a result of simple human error, according to Intel, the world’s number one chipmaker. The incident would have been interpreted by AMD as the latest in a long line of its rival’s dirty tricks. That one of the world’s leading information technology (IT) companies should have so carelessly lost key electronic evidence was described as "just incredible" by one industry source, who wished to remain anonymous.

In 2002-04, AMD’s share of the Japanese market for x86 processors plummeted, allegedly as a result of similar dirty tricks. AMD claims that Intel fenced off the Japanese market by offering computer-makers refunds in exchange for varying degrees of loyalty. The company’s stranglehold on the market was intensified by the Intel Inside gimmick, which was displayed on computers in return for marketing assistance. Fears of retaliatory action from Intel have allegedly kept quiet the 38 customers who may have been cited in AMD’s EU and US complaints. In a 48-page document submitted to the European Commission, AMD is said to have reported that former Compaq CEO Michael Cappellas had to stop buying its processors because he had a "gun to his head".

Developments in the US mark a crucial point in a fierce battle being waged on both sides of the Atlantic. The loss of evidence considered as crucial by AMD is now set to complicate further the US case, which is due to go to trial next year. In an unpublished statement discussed in the Delaware court yesterday (7 March), AMD lawyers said: "The damage does not appear confined to low-level or marginally important witnesses; to the contrary, Intel executives at the highest level failed to receive or to heed instructions essential for the preservation of their records, and Intel and its counsel failed to institute and police a reliable backup system as a failsafe against human error."

Industry insiders are now keen to discover possible implications for the Commission’s investigation, which has been dragging on for six years. The delay is puzzling given Competition Commissioner Neelie Kroes’s apparent intention to speed up the processing of cases. Conflicting reports over the past months citing Commission sources have sowed considerable confusion among observers who are beginning to question why the investigation should be taking so long. "Over the past 12 months we kept seeing signs of some sort of movement, but nothing has happened. It’s about time they took a position one way or the other," says Stephen Kinsella, a partner at the Brussels’ office of law firm Sidley Austin.

One Brussels insider claims that Kroes is reluctant to announce a decision despite investigators’ conclusions that evidence against Intel is insufficient. According to an Intel spokesman, however, the investigation is still live. "As far as we’re concerned there is still an investigation," said US-based Chuck Malloy. "This is an open investigation. There have been rumours and speculation. We continue to co-operate. We’re working hard to convince the EU that our business practices are fair. The [members of] staff at the Commission are doing the best they can."

But, as sensational new details of Intel’s alleged misdeeds emerge east and west of Brussels, the Commission’s investigation could be delayed further. In their statement to the Delaware court, AMD’s lawyers mention recent charges brought by the shareholders of computer maker Dell against Intel. It is claimed that Intel made secret payments totalling as much as $1 billion (€760 million) for Dell’s loyalty. The charges, which were made public on the same day that former Dell CEO Kevin Rollins quit, did not attract much attention when they emerged at the beginning of last month.

Also last month, in Hong Kong, it emerged that computer maker Lenovo may have agreed to stop buying chips from AMD over a number of years as part of a package worth $100m (€76m). The company, which had previously bought more than half its processors from AMD, withheld information about one instalment from investors, listing as profit the $22m (€16.8m) it received from Intel in the third quarter of 2006.

The Commission would have good reason to delay its verdict should these allegations be feeding into its investigation. Ironically, however, AMD is now doing very well, having proven itself to be a formidable rival to Intel. From 2003-05, it gained a foothold in the lucrative server market with a powerful chip called Opteron. Intel reacted aggressively, lowering prices to claw back market share and developing an imitation chip to compete with Opteron. This autumn will see AMD on the rise again with an even more powerful chip called Barcelona. With the consumer reaping the benefits of the bitter war between Intel and AMD, Kroes may yet be dissuaded from taking action.

As observers await the European Commission’s verdict on allegations of anti-competitive behaviour brought by Advanced Micro Devices (AMD) against arch-rival Intel in 2000, the gloves have come off in a parallel investigation on the other side of the Atlantic.