For AMD, a Risky Legal Road


By Cliff Edwards and Olga Kharif With the hoopla quickly dying down from Advanced Micro Devices' (AMD) antitrust lawsuit against larger rival Intel (INTC), the legal battle is turning into what could be a delicate, behind-the-scenes effort on AMD's part to see potentially crucial evidence preserved. And the outfit must achieve that goal without alienating the very customers from which it hopes to win more business, should it prevail.

In a suit filed June 27 in federal court in Delaware, AMD accused Intel of engaging in a "relentless" campaign to maintain a virtual monopoly of the multibillion-dollar market for microprocessors in personal computers and servers (see BW Online, 6/28/05, "AMD Hauls Intel Back to Court"). The maker of the Opteron server and Athlon64 PC chips contends Intel has used both threats and financial payments to stop AMD from making inroads with PC makers and retailers globally. On the heels of a recent antitrust ruling against Intel in Japan, AMD aims to show that secret dealmaking between its rival and top PC makers is illegal under U.S. law. Intel denies any wrongdoing.

MUTUAL DEPENDENCY. Already, though, it seems AMD's road will be a tough one. In a document filed July 1, AMD lawyers acknowledge that little evidence likely exists beyond internal, electronically posted gripes of Intel's customers alleging that the giant used a carrot-and-stick approach to cow them into limiting AMD purchases.

In asking a judge to allow it to serve the 32 named companies with subpoenas requesting that they preserve documents, the filing argued that "Intel's footprints are likely to be found largely in the electronic files of its customers." The deadline for companies to voluntarily agree to participate in the case elapsed on June 30, and on July 1, AMD began serving the subpoenas.

Now some of the 32 PC makers and retailers are about to confont a deadline to fight those subpoenas. For those served with subpoenas on July 1, objections against participating must be lodged by July 14. The window means they still have time to negotiate with AMD what documents they'll turn over.

SEALED LIPS. But the move could backfire. Revealing those documents puts the very same customers AMD is targeting in a quandary. Many say they count on the subsidies, discounts, and "co-marketing" dollars they receive from Intel to turn a profit in a highly competitive business notable for its painfully thin margins.

Take Sony Electronics U.S. President Dick Komiyama, who's responsible for Sony's (SNE) PC business in the U.S. He says the company would have exited the business completely nearly two years ago had it not started using all of Intel's chips.

Given the situation, AMD faces major challenges. Possibly to limit its exposure in court, Hewlett-Packard (HPQ) General Counsel Ann Baskins last week sent a memo to employees urging them to refrain from discussing the case in e-mail, on blogs, or via instant messages, BusinessWeek Online has learned.

WIN BY DIVERSION. Most PC manufacturers "don't want to be dragged into court," says industry analyst Rob Enderle of consulting firm Enderle Group. A spokesperson for HP declined to comment on the AMD suit.

Of the companies AMD asked to preserve documents, only one -- Best Buy (BBY) -- agreed to comply without limitation. Nine others -- Acer, Circuit City (CC), Gateway (GTW), Lenovo, NEC, Rackable, Sony, Sun Microsystems (SUNW), and Tech Data (TECD) -- are in "active negotiations" with AMD. Toshiba flatly refused, AMD attorneys say. And Dell (DELL), the world's largest PC maker and one of the few never to have sold a single AMD chip in its history, has said only that it's considering the request.

Intel execs have been tied up in meetings on how to deal with the lawsuit. And if the fight drags out over 18 months or more, as AMD expects, it could further distract the chipmaking giant. Or it could force Intel sales execs to adopt a softer approach that might give AMD access to more markets -- and do so just as it ramps up production next year at a giant new chip-fabrication plant in Dresden, Germany, which is expected to cost $2.4 billion.

COSTLY CASE. New business to keep that plant fully running and provide an adequate return on investment is crucial. When AMD reports earnings July 13, analysts expect a loss of 6 cents a share, due to deepening red ink in its memory business and competitive weakness against Intel in the fast-growing notebook PC sector. AMD shares closed at at $18.94 on July 8, up 21 cents.

Antitrust attorney Tyler Baker of Fenwick & West in Mountain View, Calif., says the onus will be on AMD to prove its case, both financially and legally. Meanwhile, AMD likely will have to fork out millions of dollars to cover the cost of preserving and going through documents, he notes. With the legal bet made and no expectation of a quick settlement, AMD has no choice but to play the hand it has dealt.

With Ben Elgin in San Mateo, Calif.

Edwards is a correspondent in BusinessWeek's Los Angeles bureau. Kharif is a reporter for BusinessWeek Online in Portland, Ore.


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