Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

UPDATE: Intel Challenge to AMD Fab Spin Off

Posted by Tom Foremski - October 8, 2008

Intel (an SVW sponsor) said that AMD's plans to spin-off its fabs could violate cross-licensing agreements between the two companies:

Reuters reported: Intel says to defend patents against AMD

Intel spokesman Chuck Mulloy said that AMD and Intel have a patent cross-licensing agreement under which AMD pays royalties to Intel.

"Intel has serious questions about this transaction as it relates to the license and will vigorously protect Intel's intellectual property rights," Mulloy said of AMD's announcement.

Tuesday AMD said it had entered into an agreement with Abu Dhabi to establish a joint venture company that would own its chip fabs.

Please see: Advanced Micro Devices Spins Off Chip Plants as a Foundry Joint Venture

Foremski's Take: Advanced Micro Devices is legally protected in its manufacture of Intel compatible microprocessors by a long standing cross-technology licensing agreement. At this point it is unclear what Intel's complaint is about. It could be related to two points:

1) By spinning off its chip fab and turning it into a foundry, it's possible that the new foundry company might be able to manufacture Intel-compatible microprocessors for third-parties.

Intel has a long history of preventing others from manufacturing compatible microprocessors unless the compatibility was developed under stringent "clean room" conditions in which the developers had never seen any related microcode.

2) The joint venture foundry company might not have the rights to manufacture AMD's Intel compatible microprocessors because of the change in ownership.

If Intel is successful in blocking AMD's plans it will be a serious blow to the company because AMD will lose a $700m cash infusion and it will be unable to move towards a fabless business model. Running its own fabs is a costly business for AMD and carries substantial business risks. The company is already struggling in its competitive battle with Intel, and challenges with its acquisition of ATI Technologies, the Canadian graphics chip maker.

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