AMD says Intel-only deal struck at Apple in 2005

An Advanced Micro Devices executive claims that Intel and Apple cut a deal in 2005 that made Intel an exclusive supplier of processors to Apple, preventing AMD from gaining Apple business.

The claim, made in a phone interview with Tom McCoy, AMD's senior vice president of legal affairs, earlier this week, holds that Intel has had a longstanding deal to be Apple's sole supplier of microprocessors. To date, Apple has not used an AMD central processing unit (CPU) in any of its products. Currently, only Intel CPUs populate Apple's laptop, desktop, and server lineups.

This assertion by AMD comes in the wake of the EU decision last week to fine Intel $1.45 billion for violating antitrust legislation. Last week's EU decision centered on whether Intel used illegal tactics to deny processor business to AMD at PC makers.

McCoy said that a deal was struck when Apple moved from the PowerPC (IBM-Motorola) chip architecture to the x86 (Intel-AMD) architecture. The transition was announced by Steve Jobs at the Worldwide Developers Conference in 2005.

"They made a deal when they were porting over from PowerPC to x86 as to how much Intel was willing to pay for that port. My guess is that Intel asked for and won exclusivity in return for the help that they gave Apple to port," McCoy said.

McCoy continued: "That deal will not be exclusive forever and when that exclusivity is over, I'm sure they (Apple) will choose on the merits. We'll have a chance to compete for Apple's business when Apple is ready," he said. Intel denies this allegation.

Though McCoy did not make any direct charge of illegal activity regarding such a deal, the assertion is not that far removed from charges made in the July 2005 AMD complaint against Intel. AMD, in that filing, cited Dell, among other examples of exclusive Intel deals with PC makers. "In its history, Dell has not purchased a single AMD x86 microprocessor despite acknowledging Intel shortcomings and customer clamor for AMD solutions, principally in the server sector...Dell has been and remains Intel-exclusive. According to industry reports, Intel has bought Dell's exclusivity with outright payments and favorable discriminatory pricing and service." (Note: Dell, in 2005, offered no AMD-based products, though it does today.)

Whether the deal is exclusive doesn't in itself constitute a legal argument, according to Joshua D. Wright of the George Mason University School of Law, who has written about the EU decision in a blog, "Truth on the Market." "Under Section 2 of the Sherman Act, a plaintiff must show that the exclusive dealing arrangement harmed competition in the form of higher prices, lower output, or reduced innovation," Wright said, responding to an e-mail query.

Addressing the Apple case, Wright said that by granting exclusivity or a large share of their business, "Apple and others are able to play Intel and AMD off each other to get higher rebates. These rebates are ultimately passed on to consumers in the form of lower prices. That's a critical part of the equation here. In other words, when Apple makes a decision whether or not to accept Intel's offer of higher rebates plus exclusivity versus whatever it is that AMD offers, it weighs these different aspects of competition (quality, price, rebate, exclusivity). It is making a decision on the merits of the total competitive package," he said.

Intel says the original Apple decision was, in fact, based on the merits. "Intel won the business based on the merits of its technology and product road maps, which included superb mobile processors and our 45nm Hi-k-based processor roadmap," Intel spokeswoman Claudine Mangano said in response to an e-mail query. "What has resulted from this decision is tremendous product and market innovation. If Intel technology did not perform well and our product road map was not strong, customers would go elsewhere," she said.

The transition was not trivial, according to Intel. "The decision was a large undertaking and a multiyear effort given the customer was porting to a new architecture," she said.

Apple declined to comment on this story.

Analysts agree that the transition from PowerPC to x86 was a formidable undertaking.

"Intel put a significant amount of resources into helping Apple make that transition," said Jim McGregor, chief technology strategist at In-Stat. "There are different ways you could do this. In terms of product pricing, charging for engineering resources, or maybe even--'this is our agreement to provide you with these products in exchange for the engineering,'" he said. McGregor added that AMD may not have had the wherewithal to take on the transition. "I don't know if Apple could even have gone to AMD. Because I don't know if AMD would have had the resources to do that."

Marion Morales, vice president of IDC's semiconductors research program, said Apple is fiercely independent and, generally, picks suppliers with Darwinian rigor. "Apple is notorious for not being very loyal," he said. "They are always changing suppliers around. Whoever offers the better technology," according to Morales.

"For example, they're using Samsung for the (ARM) processor that's now in the iPhone," Morales said. "But it won't surprise me when they replace that with something that's better. And when you look at the processor itself, they're designing the processor and using Samsung as a foundry (factory)," he said, underscoring the fact that Apple emphasizes internally developed technology and de-emphasizes external suppliers, even large companies like Intel and Samsung.

Morales continued. "Maybe at this point in time Apple is only using Intel. But if they had a chance to use someone else that's better, they would," he said.

The Intel-Apple relationship has had its ups and downs. Though Apple extolled the virtues of Intel's architecture after its transition to Intel in 2006 and continued this in January 2008, for example, when it introduced the MacBook Air--which, at the time, used a special Intel processor--the two companies were not so chummy in October of last year when Apple announced a refresh of its MacBooks, replete with Nvidia chipsets that displaced Intel silicon.

Apple has also acquired chip company PA-Semi, which is expected to design silicon for Apple's iPhone or other consumer electronics devices.