NOT WITH A BANG, BUT A WHIMPER by Michael S. Malone
Not with a bang, but a whimper. One of the biggest corporate feuds in the history of American business seemingly ended a couple weeks ago with barely a mention in the headlines.
Perhaps it was the fact that, in this dreadful year, that there are so many stories competing for news coverage – even ‘Climate-gate’ can’t seem to get coverage in the traditional media – that a mere settlement between two giant chip companies after forty years of war isn’t going to see much traction. Still, given that the two companies are Intel and Advanced Micro Devices, and the product under dispute, the microprocessor, is arguably the most important piece of hardware on the planet, at least a little attention must be paid to the announcement.
Here, in summary, is the official announcement: On November 12th, after more than six months of negotiations, the last of them taking place in Hawaii (because that’s where the mediator lived) Intel agreed to pay AMD $1.25 billion in settlement of various anti-trust allegations made by the latter, smaller chip maker. And that, it seems, is that. But behind that announcement hides decades of history – and a competitive battle between the two companies that helped define the modern world.
I’m not exaggerating when I say that. With tens of billions of microprocessors in use around the world, bringing intelligence to everything from games to computers to the Internet, these little devices, invented at Intel in 1969, have set the boundaries of modern life. They’ve also set the pace, thanks of course to Moore’s Law, named after Intel’s co-founder. Our view of the technological world as constantly becoming more powerful, cheaper and more ubiquitous, is mostly due to the microprocessor.
None of that may have been true – and the world might have been a very different place – without the Intel-AMD feud. It began simply enough: in the early 1980s, Intel finally overcome its initial reluctance to divide its attention between memory chips and microprocessors and decided to focus on the processors, where it had (and thirty years later, continues to have) market and technological dominance. But there was one problem: customers, from NASA to IBM to the latest hot consumer electronics maker, refused to put their fate in the hands of a single supplier, especially not one in an industry as volatile as semiconductors.
So, Intel needed a ‘second source’ supplier to license and sell its chips. Intel chose its struggling Silicon Valley neighbor, Advanced Micro Devices, in part because it was unlikely to ever be a competitive challenge, but also because Intel co-founder Robert Noyce had a soft spot for his old Fairchild employee, Jerry Sanders, whom he looked upon almost as a son. The brash and flamboyant Sanders, one of the greatest marketers in high tech history, had struggled heroically to build AMD and Noyce knew that an Intel second-source agreement would help get the company out of the financial woods.
It all went as planned for the first decade. AMD grew healthy, and Intel went on to rule the world as the most successful and powerful company of the age. But then AMD got into financial trouble – and, desperate, Sanders dug into the company’s library of contracts, dug out the old Intel second source agreement, and decide to go full-bore into the microprocessor business by cloning Intel’s own design. The move saved the company, but understandably enraged Intel, which sued for contract and patent violation. AMD countered by charging Intel with monopolistic behavior . . .and the war was on.
It has been raging ever since, with Intel acting like an angry bull trying to shake off the ferocious badger clamped to its back, and AMD hanging on for dear life. At least that was the public image. In reality, for all of their feuding, the two companies desperately needed each other. AMD wouldn’t have existed without having Intel’s innovations, from one processor generation to the next, to build upon and modify. It also essentially survived on Intel’s leavings – much of its revenues came from companies, such as Compaq, that didn’t want to work with Intel.
Hi. I am a long time reader. I wanted to say that I like your blog and the layout.
Peter Quinn
Michael, great article and nice historical summary on the core of Silicon Valley. Just an FYI, the link to the BW article is not working.
Ah, capitalism! Ya gotta love it!
The new competitor is Qualcomm and it’s ARM enabled processors.
It is only a question of scale and integration, but the first microchip was invented by a guy at Texas Instruments. Think his name was Kirby. To say Intel invented the microprocessor is like saying the guy who invented the flourescent light… invented the light bulb.
Chukalukabus:
The guy at Texas Instruments was named Jack Kilby, and he rightly deserved the Nobel Prize for the invention of the microchip. But even Kilby said, on receiving the award, that the late Bob Noyce of Fairchild/Intel deserved to share the Prize. Nor was it merely a matter of scale and integration. Of the 20 billion ICs out there in the world, I challenge you to find ONE that uses Kilby’s design. By comparison, ALL of them feature the ‘planar’ process that began wih Noyce’s original design, and then was perfected by one of two teams (one run by Gordon Moore, the other by Jean Hoerni — Hoerni won) under Noyce’s direction. [As it happens, besides being editor-in-chief of Edgelings, I was also the author of "The Microprocessor: A Biography", a standard general text on the subject.]
I googled myself. Came up to your response all these years later. Hope you have your respond to all comments turned on.
Just to let you know, I have spent the last 15 years at Motorola/Freescale semiconductor. My first computer was a cassette driven TI model back in the 70′s. I spent a summer of my youth programming that thing to play pong on the crappy TV set we had.
I just wanted you to know that you are correct. And dead on.
To this day, Freescale only builds RISC chips. Our chips essentially run the world.
It’s surprising that Intel’s copying of AMD’s 64-bit architecture (after the dismal failure of Intel’s own Itanium) was not mentioned in the article.
Also: VIA is screwed now.
Nice piece.
One thing I don’t get is why Europe is quick to launch anti-trust suits at big American companies instead of investing in creating a competing company with all the subsidies they like to throw at industries.
Wow so that’s what happened. Back when I was a PC tech head I used to build my computers with AMD chips just because they were cheaper and in Anthlon’s case faster.
Now I wonder who will come in and replace AMD because as the author says I don’t see AMD staying around long unless something major happens.
The Business Week story is at http://www.businessweek.com/technology/content/nov2009/tc20091115_692400.htm (no final “l”).
Phranc,
Without massive government subsidies, government anti-free trade practices, AND antitrust lawsuits against American companies Europe couldn’t begin to compete against the US.
Europe has environmental, labor regulations, and government mandates that make even California look like China. The power of labor unions and other collectives to stunt growth, siphon off operating and R&D money, and generally hamper the operation of many aspects of society makes it so that ONLY big government projects really move ahead and even then ponderously. Huge chunks of their population have forgotten how to burn the midnight oil that is the engine of creativity.
Fortunately for them we now have the CHANGE we need in our government and economy to move towards their views and techniques of societal development.
Not only that, competition is a violation of nature, peace, and harmony. Any successful company should just recognize when it is someone else’s turn to have the monopoly and hand over the goods to an appropriate agency of the government (who will choose a friend to get rich off the product who is willing to share with high officials) and get out of the way.
Kind of like Chicago politics on a Macro scale.
However, not all of those are Intel of AMD. In fact most of the embedded chips aren’t Pentium architecture. So that’s a little bit deceiving. I would guess that the number of P-architecture chips currently in service is closer to 2 billion. Still huge, but embedded it a whole other world.
AMD never did well until they bought NexGen (primarily a bunch of DEC refugees) and used their technology to make the K6 a winner. NexGen had been using IBM as a foundry and AMD had to buy some process expertise from IBM to be able to fab the K6, but after that initial hurdle the Athlon came on gangbusters with a smarter architecture than Intel was following.
Having seen first hand the state of the markets then, the allegations by the EU and Cuomo are 100% true: Intel choked off any chance of a competitor getting into the market with cash and bare knuckle supply management tactics.
I believe it was actually a good business decision on their part since they defended until they got time to recover from the P4 debacle and killed off AMD as serious competition, so paying paltry fines that aren’t even 10% of their cache hoard won’t hurt the company going forward.
Going fabless AMD will probably go the way of Cyrix and even NexGen down the road. They just won’t have access to the early processes they need to be successful against Intel.
#’s 7 and 8 chukalukabus and msmalone
Nearly everything accomplished in electronics since the 1950′s builds on the shoulders of research done at Bell Labs. If we need a more recent name, what about the “Parent” of the VLSI – Prof. Lynn Conway, U. Mich, for her work at IBM, later at Xerox.
That said, I have computers running on both Intel and AMD CPU’s. Both manufacturers make excellent products. Lacking fabrication on AMD’s Part will make things very interesting. Could Ford or Boeing make it as a design shop only?
Probably NOT. Yet today, electronic companies do that. If not, I see AMD’s future as being the “Green Network” to someone else’s of a different color by way of purchase or merger. -S-
Thanks for another great article. I have been waiting for your critique of the Intel/AMD settlement. You have kept us up to date on this great saga for many years.
I am now looking forward to your book on this epic example of this antagonistic but symbiotic business relationship.
Brodave:
Great idea! Once the economy gets going again — whenever that is — and the market for Silicon Valley books comes back, I think it would be a fun project. I think it’s one of the greatest competitive duels in American business history.
And thanks for being such a loyal reader.
Mike Malone