On February 16, 2006, Intel took note of a service report in which Dell's chief executive, Kevin Rollins, had said that Dell had "made no plans to begin using" AMD chips. "Finally, something positive," commented one Intel executive. On the contrary, Intel CEO Paul Otellini returned: "The best friend money can buy."
Minus a few minor changes, this anecdote not only spells out the relationship that New York State Attorney General Andrew S. Cuomo alleges Intel had with its OEM partners, but the level of detail of the antitrust suit that the State of New York filed last Wednesday. Unlike the clipped anecdotes at the heart of the European Union's case, New York's suit almost reads like a John Grisham novel.
Intel has already been investigated and/or sued for antitrust violations in South Korea, Japan, and the European Union, which fined Intel the equivalent of $1.45 billion. Unlike the supporting documents the EU provided, however, the New York suit not only makes allegations, it backs them up in detail.
To be fair, this is only part of the story; Intel spokesman Chuck Mulloy told me that the company can't comment on the allegations in detail, due to a protective order. He did characterize the evidence as "one-sided," however, and said that "exculpatory" evidence will be released at the trial.
Until the trial begins next March, however, one side is all we have.
According to the suit, Intel's behavior was predicated on marginalizing AMD in the market. Intel's actions, the suit contended, harmed New Yorkers by eliminating true competition.
"Intel knew that if it could exclude AMD from the most lucrative segments of the microprocessor business, AMD could never become a genuine threat," the suit says. "For AMD to make sales was not sufficient; if it were to challenge Intel's monopoly power, it would have to make substantial high-value sales to major corporate customers. Only by raising the average selling price of its products could AMD challenge Intel's leadership. Intel therefore argued to OEMs that Intel would 'continue to pigeon hole AMD to the bottom 10 percent of segment.'
"Intel's Paul Otellini believed that AMD units which were sold on 'the backstreets of beijing [sic] are wonderful...[T]here is really no question that in the long run, I would like to see amd [sic] output spread round the world as a low cost/low value, unbranded brand…' Accordingly, in the following years, Intel focused on barring AMD's access to this vital high ground – the corporate market and its gatekeepers, the major OEMs," the suit added.
To achieve this, Intel first began eliminating its paper trail, taking sensitive conversations out of e-mail and onto the phone or via instant-messaging applications, the suit alleged.
And then there was the language: Partners were "aligned" with Intel, in a "strategic" sense. Those that weren't were "transactional" partners, and paid the open-market price for processors. Those strategic partners were privy to special deals: CAP (Customer Authorized Price), or ECAP (Exception to Customer Authorized Price). In Dell's case, the acronym was different: MOAP, or the "Mother of All Programs."
Dell, HP, Intel, and IBM are all part of the investigation, and few escape being tarred by Cuomo's brush.
First, there's Otellini's quote above. The evidence Cuomo's team amassed portrays Dell as a company hooked on Intel's marketing dollars, with executives begging Intel for more money to meet Dell's quarterly earnings forecasts. From Feb. 2002 until Jan. 2007, Intel paid Dell $6 billion in "rebates." "Bid buckets" discounted the CPUs Dell purchased to 500 percent of the purchase price—yes, Intel paid Dell five times the price of each CPU to allow Dell to win business using Intel parts. A Dell spokesman declined to comment on the suit.
And, when Dell finally caved and bought AMD chips, Intel took the same subsidized deal to Lenovo, the suit alleged.
Intel has previously denied that Dell was intimidated into buying exclusively from Intel. "One important OEM, Dell, which the Decision says was coerced by fear of Intel 'punishment' to buy exclusively from Intel, has confirmed publicly that it always considered itself entirely free to choose to buy from AMD, without fear of reprisal or punishment," Intel said, in a published response to the EU's decision.
In some ways, HP's relationship is even more bizarre. On one hand, Intel convinced HP to restrict the sales of AMD-based PCs to just 5 percent of its total output, through a combination of strict sales practices that limited HP from selling an AMD SMB machine directly from HP, rather than its massive sales channel.
But the stick that Intel wielded was none other than the Itanium, the oft-maligned enterprise server chip that Intel spent billions developing. Internally, this is what HP concluded, according to the suit: "Itanium is more important to HP's future server and workstation business success than it is to Intel."
The suit quotes Otellini, then chief operating officer at Intel, as threatening to shift its resources into developing 64-bit extensions for its chips, a path Intel later took, and away from Itanium.
IBM also was not immune to Intel's marketing dollars. In 2004, IBM was prepared to launch the e350, a 4-way server based on AMD's Opteron chips. Instead, according to the suit, Intel paid IBM $130 million over three quarters, during a time when IBM's annual, Intel-based server revenue was about $500 million.
New York's suit is detailed enough that it's impossible to include all of the anecdotes and relevant facts. Here, however, are some of the highlights. Quotations are taken from the New York filing.
