Intel to Keep Close Eye on AMD Split

In light of AMD spinning off its manufacturing business, Intel has made it very clear that it will scrutinize the deal in regards to cross-patent licensing agreements between the two processor giants.

While speculated for months, AMD formally announced that it will be splitting into two separate companies. AMD will continue to design microprocessors, while the other will focus on processor manufacturing.

The manufacturing spin off is called the Foundry Company, a temporary name. Foundry will be owned by AMD as well as a new company named the Advanced Technology Investment Company. ATIC will have the majority stake at 55.6 percent, with AMD owning the rest. ATIC, an entity formed by the Abu Dhabi government, has promised to contribute $2.1 billion immediately, $3.6-$6 billion more to build and/or upgrade chip plants. While Advanced Technology will be contributing the lions share of cash and also controls more than half the company, AMD said the two companies would share voting control equally.

Mubadala Development Company, another Abu Dhabi-based investment company, will pay $314 million for 58 million shares, increasing its stake in the presplit company to 19.3 percent, up from 8 percent. It will also get warrants to buy an additional 30 million shares.

While AMD’s cash flow problems may be solved, Intel has made it abundantly clear that it will be going over the split with a fine tooth comb. Because Intel and AMD have a patent cross-licensing agreement, from which Intel receives royalties from AMD, Intel will scrutinize every detail of the split in regards to its intellectual property.

“We’re concerned we don’t have enough information,” said Intel spokesman Chuck Mulloy. “All we’ve said is we have some serious questions about this transition and we need to understand more about it, particularly as it relates to our intellectual property rights. All we have so far are the press releases, the public statements and the press coverage. We’ll be digging into this more.”

AMD has cross-licensing agreements with Intel dating back to 1976, with the current iteration expiring in 2010. While Mulloy said that Intel is more than happy to make the specifics of this agreement public, AMD has not made any steps to do so. “Under this, AMD pays Intel royalties for patent rights. We get their patent rights and they get our patent rights,” Mulloy said. “The specific issue is the cross-licensing agreement.”

In response to Intel’s concerns, Ward Tisdale, AMD’s manager of global community affairs, said, “It’s a bunch of nonsense, frankly. We have very competent lawyers who looked at this deal from top to bottom.”

AMD spokesman Travis Bullard added: “We are completely confident the structure of this transaction takes into account our cross-license agreements. Rest assured, we plan to continue respecting Intel’s intellectual property rights, just as we expect them to respect ours.”

It would be more of a shock to see Intel staying mute on something like this rather than taking up a defensive position. In reality, this seems like a Cold War strategy, where both sides talk about legal strategy and retaliation, but in the end nothing comes of it. Whatever the outcome, Intel has to feel pretty good about being the last major company to both design and manufacture its own processors.

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