Intel's lawyers launch probe into AMD's spinoff plans

Chip maker says new fab company could force an end to its long-time licensing pact with AMD.

Intel's lawyers are evaluating whether a new manufacturing business spun out of Advanced Micro Devices could end a long-standing cross-licensing agreement between the firms.

On Tuesday, AMD announced plans to spin off its manufacturing operations into a separate company tentatively called The Foundry. The restructuring would let struggling AMD rid itself of the financial burden of running fabrication plants and provide a hefty influx of cash from its partner in the deal, Advanced Technology Investment Co. (ATIC).

Now, rival Intel is throwing a flag on the play.

"We certainly have to evaluate it," said Intel spokesman Chuck Mulloy. "It certainly could be a change in the competitive landscape."

Mulloy explained that Intel and AMD have licensed each other's patents since 1976. Among other things, the latest pact signed in 2001 calls for AMD to pay royalties to Intel for the use of its x86 architecture.

"Intel has serious questions about the AMD move as it relates to that licensing agreement," said Mulloy, who would not divulge how much AMD pays in royalties for the X86 architecture. "We don't have enough information. We will be evaluating it. Intel has an obligation to shareholders to protect its intellectual property."

Drew Prairie, a spokesman for AMD, told Computerworld that executives paid close attention to the restrictions in the company's various licensing agreements when making plans for the spinoff.

"We looked at this," he said. "We structured this in a way that this takes into account all our licensing agreements to ensure The Foundry will be able to manufacture all of AMD's products."

Mulloy said AMD did not contact Intel about the licensing agreements during the planning stage for the spinoff. He added that Intel has not yet reached out to AMD about it either.

The new company will be co-owned by AMD and ATIC, which is owned by the government of Abu Dhabi in the United Arab Emirates. ATIC will shell out US$2.1 billion -- $1.4 billion going to the new company and the rest going straight to AMD, according to AMD.

The Foundry will assume about $1.2 billion of AMD's debt.

Industry analysts noted after yesterday's announcement that by splitting off its manufacturing operations into a separate company, AMD could be on track to become the nimble, innovative company that once had Intel on the run.

"It's like the old AMD after a spa and rehab vacation," said Dan Olds, principal analyst with the Gabriel Consulting Group. "They've come back stronger financially and in better shape overall. They're still the same company and they still [partially] own their fab operations. It's like they got a rich uncle to help them out."

Word of the spin-off was welcome news to Wall Street yesterday, which responded by lifting AMD's stock by 18% Tuesday morning during the same period that the Dow dropped by 200 points, noted John Lau, a senior semiconductor analyst and managing director at Jefferies & Co., who had predicted the spin off early last month.

Lau said the spin off of the chip-fabrication operation is a necessary move for AMD. "This fab spin-out changes the equation on how to remain competitive," he said. "Now it's a design race."

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Sharon Gaudin

Sharon Gaudin

Computerworld
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