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AMD v. Intel Antitrust Suit Conference Call Transcript - June 27, 2005
Operator
Ladies and gentlemen, thank you for standing by and welcome to the AMD conference call. At this time all participants are in a listen-only mode. Later we will have a question-and-answer session. Instructions will be given at that time. As a reminder, today's call is being recorded.
I would now like to turn the conference over to your host, Director of Global Communications at AMD, Mr. David Kroll. Please go ahead.
Dave Kroll - AMD Director, Global Communications
Welcome and thank you for joining us today. We're here to announce that AMD yesterday filed a 48-page antitrust complaint against Intel Corporation in U.S. Federal District Court in Delaware. Our participants today are Hector Ruiz, Chairman of the Board and CEO; Tom McCoy, Executive Vice President for Legal Affairs and Chief Administrative Officer. And also with us is Chuck Diamond, partner at O'Melveny & Myers and our lead outside legal counsel.
For more information on our announcement, please visit http://www.amd.com/breakfree. Now I would like to introduce AMD's Chairman, President, and CEO, Hector Ruiz, to deliver opening comments.
Hector Ruiz – AMD Chairman and CEO
Thank you, Dave. First, let me thank you all for being here today. Over the past several years, AMD has truly become a leader in innovation by bringing affordable computing to people around the world, creating the most powerful computing solutions and forging the pathway to better, more innovative computing. Through the introduction of 64-bit technology and dual-core processors to our state-of-the-art 300 millimeter fabrication plant about to become online and our reputation as an industry leader is now unquestioned. And our business is strong.
Chosen for its superior performance, efficiency and price, AMD products are now used by over half of Fortune 100 companies and the world's top entertainers and creative minds. Industry analysts and leading technology and business publications across the globe have recognized and acclaimed AMD's innovation leadership. We are a customer driven company. We make products that computer makers need, that consumers want, and that businesses demand.
It is on the foundation of our technology leadership that we set out to remedy the imbalance in the microprocessor sector that has been ignored for far too long. That is why AMD has filed a 48-page antitrust complaint against Intel in the Federal District Court of Delaware for violations of the Sherman Antitrust Act and the California Unfair Competition Law. We have posted the full text of our complaint at a special website, http://www.amd.com/breakfree. I hope you will read it and learn what many industry insiders and observers have known for years. Intel uses its monopoly position to block competition by hurting its own customers and the industry at large.
Governments around the world are shining light on Intel's actions and the threats they pose. Just this spring, the Japanese government recommended Intel be sanctioned for its exclusionary misconduct. Intel did not contest the charges. And the European Commission is currently investigating Intel for similar possible antitrust violations. Earned success is one thing. Illegal maintenance of a monopoly is quite another. History shows that monopolies limit choice, stifle innovation, and harm consumers. Monopolies do what is good for them, not their customers. Intel is a monopoly pure and simple and it is time the industry broke free from their chains.
Now let me invite my colleague, Tom McCoy, to discuss the specifics of the litigation. Tom is AMD's Executive Vice President, Legal Affairs and Chief Administrative Officer who will be heading up these legal proceedings on our behalf.
Tom McCoy - AMD EVP, Legal Affairs & Chief Administrative Officer
Thank you, Hector, and good morning. As Hector mentioned, AMD has filed a 48-page complaint against Intel for its ongoing elicit and anticompetitive business practices. Using coercion, intimidation, and threats of retaliation, Intel harms its own customers in an effort to crush any competition. Without fair and open competition, customers are forced to cap their purchases from AMD and consumers are forced to pay artificially high monopoly prices. And Intel's illegal monopoly is hurting the entire industry.
Read our complaint. It is all there; 48 pages of detail naming 38 companies, analyzing seven separate forms of illegality spread across three continents and it all adds up to one massive global antitrust violation. The recent findings by the Japanese Fair Trade Commission only confirm what the IT industry knows all too well. Intel is using illegal sales tactics and pricing mechanisms to avoid a fair fight that might risk its monopoly margins and these harms are global.
100% exclusive contracts are no coincidence. We are an acknowledged technology leader but Dell in the United States and Sony and Toshiba in Japan don't buy one single AMD chip. Intel's exclusive deals with Dell, Sony, and Toshiba bar us from one-third of the world notebook market and half of United States sales.
In Europe, Intel has entirely shut AMD out of sales to Media Markt which operates retail stores throughout Europe and accounts for 35% of Germany's retail sales. And despite being fully competitive with the best Intel has to offer, AMD's commercial desktop business is no greater now than it was in 2002.
We know what Intel is going to say. It's the same thing they said in response to being reprimanded by the JFTC. They will say there is no consumer harm. They will say they are just engaging in good economics. Don't believe it. Consumers are harmed and they are harmed every day because they are paying more than they need to pay; because they are foreclosed from the best innovation that competition has to offer; because they are deprived of the most fundamental right of a free market, the right to choose for themselves which is the problem with this marketplace.
In a fair and open marketplace, given that we are the technology leader, that we are the price leader, that we are the power efficiency leader in a high-energy cost world, we would expect to see our market share increasing rapidly, but there is something standing in our way. It is Intel's illegal monopoly standing in the way of competition, innovation, and progress for the entire industry using illegal tactics that prevent market access to our highly competitive solutions. At AMD we are determined to break free. We have demonstrated a sustained capability to produce complex microprocessor products in high volume for the world's most demanding customers. Our portfolio is strong. Our product roadmap is industry-leading and our customer support is greater than ever before.
AMD is leading the industry in innovation and we cannot and we will not accept Intel's standing in the way of bringing that innovation to market any longer. There is no question about our ability to compete. That's all we want; a chance to compete on the merits of our products. We are doing this because AMD is a strong and determined company but with the power of our innovation leadership comes responsibility. We have a responsibility to stand up to the industry's Goliath. We have a responsibility to the entire industry to win and we will win because we stand on the truth of how this industry suffers under the yoke of monopoly; because we are the company that stands for fair and open competition and customer choice; and because we have the courage and determination to fight for what is right.
Thank you. Now I would like to turn it back over to Hector for some closing remarks.
Hector Ruiz
Thank you, Tom. It is common knowledge that competition leads to lower prices. Market data shows that even limited competition in the microprocessor market has led to significantly better products and lower prices for consumers. Competition breeds innovation. Continued fair and open competition is essential for AMD to continue to develop top-notch products for businesses and consumers.
What guides our business at AMD is innovation, not intimidation. Today we ask Intel to cease its abusive behavior and allow market forces to prevail. These are serious allegations that deserve serious attention. To read the full indications of our complaint, please go to our website at http://www.amd.com/breakfree.
At AMD we hope to empower our customers through offering innovation and choice. We believe this legal action will help to foster fair and open competition in the marketplace, an outcome important for AMD, for the microprocessor sector, and for the entire technology industry. Thank you.
Dave Kroll
Thanks. Hector, Tom, along with Chuck Diamond of O'Melveny & Myers, lead outside counsel, are now available to take a few questions. The operator on the line will advise you of the sequence and please identify yourself before responding. In the interest of time, please limit to one question per person.
Q&A SESSION
Terril Yue Jones - Los Angeles Times
Good morning, Terril Jones of L.A. Times. I just wonder if you can describe in some detail what you are actually seeking, what you hope to obtain through this action either in terms of financial monetary either penalty or gain in market share, etc?
Chuck Diamond – Lead Outside Counsel, O’Melveny and Myers
This is Chuck Diamond from O'Melveny & Myers. Let me respond to that question. Needless to say the complaint seeks damages as we are entitled to do under the Clayton Act. In fact, treble damages for the losses and it would be irresponsible for the company not to seek recompense on behalf of its shareholders for the losses that the company sustained. But let me underscore the fact that this is not about money. This is about breaking open the market. This is about unloosening the iron grip that Intel has exercised over its customers for the past decade. This is about allowing our customers to bring their customers, consumers around the world, the best products that fit their needs at the best possible prices.
What we are after is if we can't get it consensually an order telling Intel that it has to act transparently, no more secret deals, no more intimidation, no more threats, no more fear of reprisal, that products will be sold on their merits, that the prices will be published, that the discounts will be equal to everybody, and we will compete product against product on the basis of our price, our quality, our efficiency, and we will win. That is what we are after.
Terril Yue Jones - Los Angeles Times
Thank you.
Joe Osha - Merrill Lynch
This question again is probably for Chuck. Can you give us some kind of roadmap in terms of what we should expect next? I assume you are seeking some kind of preliminary injunction and obviously you can't comment on how things are going to turn out, but can you give us some roadmap in terms of what we should be looking for next?
Chuck Diamond
The next step in the litigation, as you well know, is discovery. We expect to find significant voluntary compliance and help from our partners in this industry, but even those who fear Intel retaliation, we expect to crack open their files through the subpoena process and we have already started that process this morning. We have asked 40 major industry players around the world to undertake steps necessary to preserve their e-mail, their correspondence, and everything else that we will need to document all of the claims that we allege in the 48-page complaint.
In terms of a longer-term roadmap, we expect to go pedal to the metal. I would be self-deceptive if I did not say that we expect Intel to drag its feet; to try to protract these proceedings to the extent that it can to keep you, the journalist community, from knowing what's going on; to keep these files sealed, and to make sure that this takes forever to be adjudicated. We are intent on making sure that doesn't happen. The government got the Microsoft case to trial in less than 18 months. That's our target. We would like to get this case to trial before the end of '06.
Joe Osha - Merrill Lynch
Just to clarify that, is it your intention or can you say at this point whether you're going to try and get some preliminary finding of fact or an injunction out of the judge before this thing actually goes to the jury?
Chuck Diamond
It would be premature to comment on our legal strategy today.
Joe Osha - Merrill Lynch
Thank you.
Dean Takahashi – The San Jose Mercury News
It's been about ten years since the original settlement between you folks and as I remember that was a ten-year agreement. Did anything expire recently that made this lawsuit or gave you another reason to do this lawsuit at this time or does anything else explain the timing of this lawsuit?
Tom McCoy
Dean, it's Tom McCoy. If I may respond, the answer to your question is no. The ten-year agreement you are referring to was the renewed patent cross-license between AMD and Intel which gives both companies freedom of action in designing the proprietary technologies. That ten-year agreement has already been renewed. So there is no gap in intellectual property agreement or piece between AMD and Intel. Nothing has expired.
The answer to the question why now, I think Hector previewed it. Reason number one is that we have done a great job of execution. We are the innovation leader. We have great support from the industry beginning with Microsoft. So we have taken off the table the question about whether we're just a whiny competitor unable to compete successfully in the marketplace and therefore resorting to the courts. Business is strong. This is a stake in the ground that we are determined to build on present success and break this abusive monopoly.
The second reason relates to the findings of the JFTC in Japan. That is a proof point for us that we are making very serious allegations of an ugly problem in this industry.
Dean Takahashi – The San Jose Mercury News
And did you try to negotiate with Intel before filing the suit?
Tom McCoy
No.
Dean Takahashi - San Jose Mercury News
Okay, that's all.
Nathan Brookwood - Insight 64
My question is not why now but why Delaware? Both companies are headquartered here in Santa Clara County. Wouldn't it have been easier to use the California Districts as opposed to Delaware?
Tom McCoy
It's Tom again. AMD and Intel are both Delaware companies and both companies routinely avail themselves of the Delaware courts in pursuing legal cases. So this should not come as a surprise to anybody that we would use the Delaware jurisdiction. Indeed you may remember that the last litigation between AMD and Intel a number of years ago over the use of the acronym MMX was filed by Intel against AMD in Delaware.
Chuck Diamond
And I might add that the Delaware court, small that it may be is among the most efficient and among the judges who are the best administrators of complex high-technology cases, and we expect that forum to give us an early day in court.
Nathan Brookwood - Insight 64 - Analyst
Thank you.
Michael Masdea - Credit Suisse First Boston
In that '95 settlement that was brought up earlier there was some antitrust litigation and some business interference litigation. Does that raise the bar for this current trial?
Chuck Diamond
No, the case that we filed yesterday in Delaware is contemporary dealing with the current industry structure and the fact that we had a prior case that was settled over ten years ago has no bearing. That was then. This is now.
Michael Masdea - Credit Suisse First Boston
And then just a quick follow up. In the server market you seem to be taking some share over the last 1.5 years. Are you seeing the same dynamic there? Is this more specific to the mobile and the desktop market?
Hector Ruiz
As we stated earlier -- Mike, this is Hector -- our business is strong across the board and I look forward to sharing the specifics with you in two weeks in our earnings call.
Michael Masdea - Credit Suisse First Boston
Great, thank you.
Michael Singer - CNET News
On a follow up to the Delaware question, are you finding that that court might be a little bit more open to AMD's plight based on the previous ruling on Dentist Supply (ph) International where they also found that there was some market manipulation?
And as a follow-up, in your investigation of looking at Intel's influence are you finding you got more information from the large computer makers, the system builders, the distributors, or the retailers?
Chuck Diamond
Let me handle the first half of that question. We are obviously mindful of the circuit law that comes out of all of the judicial districts around the country. The Third Circuit in which Delaware is a part is amongst the most progressive we think clearheaded thinking circuits when it comes to antitrust issues. There have been several pioneering rulings in the section 2 space. But we chose this venue for a variety of reasons and not because of any particular decision but because the Third Circuit and the district judges within the Third Circuit understand the antitrust laws and take antitrust violations very seriously.
Tom McCoy
This is Tom. I'll try to respond to your second question and adjust me if I don't capture it just right. But I think your question was probing -- looking at the various segments of the industry, where is our factual support coming from? The answer is all of the above. When you read the complaint, you will see it crosses all industry segments and geographies. And of note to us with respect to the filing of this case, it has been extremely well-received by customers, distributors, partners across all geographies. And I guess I would say that no business, no industry wants to be hostage to a monopoly and therefore it's not surprising that we have not had one negative comment from any customer or any business partner about the filing of this case.
Michael Singer - CNET News
Thanks.
Roger Kay - IDC
Question of consumer harm. You may find that the most difficult to demonstrate. Just for an example if Intel gives deep discounts and somehow they are enjoined from using those and have to remove them, then wouldn't prices rise and consumers in fact be harmed more in that case? Can you maybe elucidate a little bit on how you're going to demonstrate consumer harm?
Tom McCoy
Good question. I think it's a pretty easy answer. Let's take an example out of what happened in Japan. Sony was extremely successful selling AMD based computers in Europe, very successful. And consumers in Europe enjoyed the choice of being able to buy Sony computers based on our technology and Sony computers based on Intel technology. That did not sit very well with Intel, so it went to Japan as JFTC found, and it dictated to Sony, look, you're not going to sell any more computers anywhere based on AMD technology.
Here's the deal. That is demonstrable consumer harm and damaging to the markets. Consumers have the right to choose. European consumers no longer have the opportunity to buy Sony computers based on our technology. That is clear, classic, abusive monopoly harm.
Roger Kay - IDC
Right, but just to probe that a little bit, supposing that Intel made the case -- they said, actually our stuff is better and that is why they wanted it and we don't think consumers are harmed because they got the best stuff.
Tom McCoy
I guess – I fully expect Intel to huff and to puff but they are not going to blow the courthouse down. A one glance at Intel's monopoly margins, one glance at a 41% operating margin now far surpassing Microsoft's 25% margin and a glance at what the OEM margins are tells you that the OEM industry is hostage to Intel and we are the price leaders. So this is not about -- this is not a pricing case. We're not complaining about pricing. We have demonstrated over the history of this company that we are a very cost-efficient company. We can compete on price and indeed we are the company that is trying to drive the cost of solutions down around the world in our product categories.
Roger Kay - IDC
I admit that those are strong arguments but in some sense aren't they just circumstantial? Maybe Intel would say we're just extremely efficient in our operations and that is why we have high margins.
Tom McCoy
They could very well be very efficient but are they more efficient than us? No way. We have to be more efficient.
Roger Kay - IDC
I guess I'm just trying to get out the consumer harm allegations because I think that is going to be the hardest to prove.
Tom McCoy
I think just to stop and reflect what the commercial desktop market looks these days for Fortune 500 companies whose CEOs expect the IT professionals there to buy from a Tier I OEM. Right now, an IT professional and a company of that kind that wants to partake of the better solutions that AMD offers at the lower prices cannot because Intel has got a chokehold on all of the Tier I OEMs that have prevented them from introducing a single AMD powered desktop.
You talk to any of the high-end users, the gamers, the artistic community, people who really do know power computers and they will tell you that AMD's products are far superior at a lower price, yet IT professionals around the globe at large corporations are precluded from taking advantage of what we have to offer. Now if you tell me that's not harm to consumers, I don't know what harm to consumers is.
Compare what happens in spaces where we are able to compete in the server markets where IT professionals have a lot more clout, the numbers are a lot smaller. They have demanded the OEMs offer them the AMD alternative, the Opteron, and we forced Intel basically to its knees. Prices have plummeted. There have been instances of Intel offering to give away chips just to protect market share. Now we don't condone that kind of behavior, but vigorous price competition results when competitive players have equal access to the market. And we have demonstrated that where we can create that situation, consumers benefit in the form of lower prices. There is absolutely no reason why AMD should not be able to bring its low-priced solutions to the commercial desktop market, to the commercial notebook market, and to the retail market around the world.
Roger Kay - IDC - Media
It will be interesting to see as it unfolds. Thank you.
Michelle Kessler - USA Today
Thanks for taking my question. I was wanting to go back to the timing issue of it a little bit. You said you have become a big company and a major player but a lot of these accusations are really, really old. This is behavior we have been squabbling about for 15 years. Why now? Was it the victory in Japan? Was there some event that triggered that made you decide to file this case now?
Tom McCoy
The answer is yes, twofold. One, given our technology leadership, given our business success, we have taken off the table any credible assertion or whisper that we are a failing company resorting to the courts as opposed to a strong company determined to fight on behalf of an industry to break an abusive monopoly.
And second, you're right. We have a proof point with the JFTC that the issues we're putting on the table are serious and credible concerns and that we are entitled to adjudication of the U.S. courts of what we are contending. So in that regard, these are not 15-year-old issues. We're talking about a contemporary marketplace, a marketplace where market demand for our technology exceeds market access because of Intel's abusive tactics. So we are trying to break today's market free. What's past is past. What's present and future is what we're focused on.
Michelle Kessler - USA Today
Great, thank you.
Vincent Dupont - Alliance Capital
I am not a lawyer, so could you just briefly outline what it is you need to prove in the courts in your opinion?
Chuck Diamond
Proof of a section violation requires -- I'm sorry, a section 2 violation requires essentially two elements. Number one, the possession of monopoly power, and that is really not contested. Anybody who knows this market, the FTC has looked at this repeatedly, knows that Intel is a monopolist.
Secondly we have to prove that Intel is guilty of abuse of its monopoly power, that it exercised wrongful conduct in maintaining a monopoly regardless of how it acquired it. And unlawful maintenance of a monopoly is really any exclusionary conduct that prevents a rival from competing on any basis other then efficiency. That means on any basis other than a better product, more efficient production, lower cost. And what we expect to prove and what we know we can prove is not only that Intel is a monopolist -- that is a foregone conclusion -- but that it has engaged in a global massive effort to exclude us, exclude AMD without any basis related to efficiency. It has simply used its economic muscle derived from the fact that it has long been the 800 pound gorilla that it holds these companies captive to a large degree because they have to buy some amount of product from Intel and it has used that power to sell perpetuated. Those are the proof points that we will have to meet. Those are the proof points that we are satisfied we can and will meet.
Vincent Dupont - Alliance Capital
Thank you.
Ben Lynch - Deutsche Bank
You've cited lots of specific examples of abuse. When we stand back and look at the big picture, AMD has been outgrowing Intel over the past 18 months or so, so overall you're actually doing very well. Isn't that probably what people are going to focus on and say yes, they are complaining about this and that, but look, they are gaining revenue share off Intel. So clearly things aren't as bad as maybe they claim, and certainly not as bad as they were prior periods in the past where you filed similar sorts of suits?
Tom McCoy
We welcome that focus. We think everyone should focus on where we're doing well and why and where we are not doing well and why and what we have put on the table is that when we have the opportunity to get market access for our products, we do very well. We have competitive solutions. We are a worthy competitor. Where we are locked out, we have zero market share and that is all on the table.
Ben Lynch - Deutsche Bank
So you're sort of saying that for some reason Intel did not exercise the same or abuse the same monopoly power in server space and that's how you have done particularly well where if they continue to in other areas? Or its a mix of that plus you've demonstrated that you actually have a markedly better product in the server space so you've maybe overcome some of those behaviors of Intel and you haven't maybe rated the same degree of advantage in the other segments and therefore you haven't seen the same market share penetration in any the other segments?
Hector Ruiz
This is Hector. Let me first of all say -- let me put some facts and reality to the table here. We are in dollar revenues today approximately 10% of the market. We have roughly been, give or take a little bit 10% of the market for the last two or three years. We have had a remarkable success in penetrating the server space due to, as Chuck mentioned earlier, the fact that that space is really – you’ve got fairly strong Maverick (ph) -- strong headed CEOs and IT professionals who really understand the industry and are able to demand their OEMs -- i.e., our customers -- to deliver products that they need and want.
However, you know if you look at the facts again saying that we have the best performing technology in the server space; the best energy savings products in the server space; the most efficient manufacturing -- we are able to manufacture those at cost that allows us to compete very aggressively, and we still only command a modest growth. And coming from a low number you might say the growth has been in relative terms substantial. Not by our measures. We deserve to have a significant larger share of the market than we currently have. And by any measure the value that our products have and bring to the market would suggest that we should be participating in a significantly higher number. The only thing that is keeping us from achieving those numbers are the illegal, monopolistic practices of our competitor.
Ben Lynch - Deutsche Bank
Okay, thank you, Hector.
Tim Rally - Bloomberg News (ph)
Yes, my question is did you -- have you tried to enlist any help from either the Justice Department Antitrust Division or a State Attorneys General to conduct their own investigations? Or was this lawsuit filed because you are unable to get any of these agencies to do their own investigations?
Chuck Diamond
The answer is that we are today on the basis of what has happened in Japan, on the basis of the ongoing investigation in Europe, on the basis of the facts that we have put on the table for determination by the U.S. Court, they are calling antimonopoly agencies around the world, focus on these abuses which are hurting free and open competition and harming consumers in every nation. We expect those antimonopoly regulators to take a hard look beginning with those in the United States.
Tim Rally - Bloomberg News (ph)
Have you got any indication or a reaction at all from any of these U.S. agencies thus far? Any preliminary discussions?
Chuck Diamond
I don't speak for any of the agencies. I can just tell you that I am very satisfied of the resources that the Federal Trade Commission has brought to bear over years now in monitoring this industry and I welcome the conversation with them.
Tim Rally - Bloomberg News (ph)
Thanks.
Operator
With that, I would like to turn it back over the host panel.
David Kroll
Thank you for joining us today. Feel free to contact AMD Public Relations for other follow ups and I appreciate your time. Thanks.
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