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Will AMD's Plans for The Foundry Company Touch Off a New Legal Battle with Intel?

written by: •edited by: Lamar Stonecypher•updated: 12/22/2008

Can AMD make a new company for its manufacturing assets, and have this company make its x86 CPUs under the x86/x86-64 cross license, or will Intel drag them into court?

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    Intel and AMD both make CPUs based on the x86 architecture, which is essentially the only option in PC CPUs. AMD pays royalties to Intel to make CPUs sharing this architecture. The licensing agreement has some provisions that could be used to try to block the TFC deal in court. But Intel has yet to show its hand, and may not be that eager to stop the deal anyway.

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    But Intel Wants to Crush AMD Like a Bug, Right?

    Intel certainly wants to stay on top, and even grow that supremacy, but they don’t necessarily want to drive AMD from the face of the earth. The theoretical advantages of a monopoly have to be weighed against the legal, regulatory, consumer perception, and other impacts that can affect the bottom line.

    You may be better off with 85% of the market than going after the whole thing, and dealing with the kind of public opinion albatross around the neck and legal monkey on the back that dog Microsoft… particularly if you become king of the jungle with weasely legal wrangling.

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    So Intel Could Block the Deal?

    The outcome of such a court battle could only be guessed at, particularly since the public copy of the license agreement is rife with *****. I am not swearing in comment about the document, but pointing out that while the full version was filed with the Securities and Exchange Commission, the version we get to look at, for confidentiality reasons, has many important areas replaced with five asterisks.

    From what information is available, Intel could try to argue that AMD is undergoing a change of control (Section 6.2.b.7), or assigning the x86 license to a third party (Section 8). How well any of this would stick is highly questionable though; Mubadala will end up with less than 20% of AMD, while they would need at least 50% to trigger a change of control. Intel can also argue Change of Control if AMD’s assets or market value would increase by more than a third as a result of the transaction. To get around being found assigning their manufacturing rights, it appears that AMD has to treat TFC as a subsidiary.

    The argument that Intel can’t cut off AMD’s x86 license without losing their license from AMD to make x86-64 chips because one cross-license agreement covers both doesn’t stand up. Section 6.2.a gives Intel the opportunity to terminate the agreement but hold on to their x86-64 license if they can find that AMD is in “material breach” of the license, such as an making an assignment. We also look at if Intel could terminate the license because AMD is undergoing a Change of Control, on the off chance Intel would be willing to risk its x86-64 license.

    Using what we know about the planned Foundry Company transactions, we’ll try to see if there is any real legal threat to AMD, at least based on the public parts of the x86 license. First we see if they are undergoing a Change of Control, then we determine if TFC will be treated as a subsidiary of AMD under the license.

CFIUS, ESD, and Possibly Even Intel Have a Say in AMD Spinning Off Its Manufacturing Business

With numerous approvals needed from investors and regulators, and possible legal issues tied to the x86/x86-64 cross-license agreement with Intel, AMD's spin-off plans to create The Foundry Company need more than a rubber stamp. Who is for it, who doesn't mind, about whom we aren't sure, and why?
  1. AMD Shareholders and Others Likely to Approve of Plans for The Foundry Company
  2. Will AMD's Plans for The Foundry Company Touch Off a New Legal Battle with Intel?
  3. Will Intel Say AMD’s Asset Lite Plan Represents a Change of Control?
  4. Could an Increase in AMD’s Market Value Because of their Asset Lite Transactions Threaten their x86 Agreement with Intel?
  5. The Foundry Company as an AMD Subsidiary Would Receive Intel x86 License Access
  6. Intel Unlikely to Pose Legal Threat to AMD’s Spin-Off Plans for The Foundry Company