Intel pays $1.25bn to settle with AMD

Intel, the world's largest microchip maker, is to pay $1.25bn to its smaller rival Advanced Micro Devices to end more than a decade of bitter patent and competition disputes between them.

The money immediately alleviates cash problems at AMD and lifts part of Intel's increasing legal burden, but the question of whether Intel abused its dominant position in the market is still being fought in court cases and regulatory investigations across the world.

Yesterday's settlement sent both companies' share prices higher, AMD's by more than 20 per cent.

AMD's chief executive, Dirk Meyer, called the deal a move "from war to peace" and said it creates a level playing field, but he also demanded "continued vigilance' from competition agencies worldwide. "It will take time for people to understand how operating conditions in the processor business have changed. But make no mistake, they have changed," he said.

The California-based company said it is withdrawing all its regulatory complaints worldwide and dropping all pending litigation against Intel, including a case in the US district court in Delaware and two cases pending in Japan. Intel and AMD also sealed a five-year cross licence deal and said they would give up any claims of breach from their previous license agreement.

Intel is facing the biggest fine in European competition history after being found to have abused its dominant position of the chip market, in which it has a market share of around 80 per cent. The European Union in May ordered it to pay €1.06bn; the company said it would appeal. The Federal Trade Commission in the US is also investigating.

And just last week, the New York attorney-general, Andrew Cuomo, sprang a new lawsuit on Intel, containing explosive details of how it allegedly manipulated the chip market and froze AMD out of key manufacturers such as Dell, the PC maker which for many years used Intel chips exclusively.

In one email cited in the suit, Intel chief executive Paul Otellini called Dell "the best friend money can buy". Intel gave Dell $6bn in rebates over five years of the exclusivity deal, and for two quarters in 2006 those rebates totalled more than Dell's entire net revenues. When Dell complained that the performance of Intel's chips was falling behind new products from its rival and began making PCs using AMD chips, Intel's chairman, Craig Barrett, wrote: "Stop writing checks immediately and put them back on list prices ASAP."

In a kiss-and-make-up statement yesterday, the companies jointly told shareholders: "While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development."