- Intel Corporation could be in violation of anti trust laws of the U.S if it acquired AMD.
- Move doesn't make much sense from a business standpoint either.
- Intel would probably be better off if it returned the surplus cash as dividends.
Advanced Micro Devices, Inc. (NASDAQ:AMD) has been a subject of numerous speculative discussions over the past few years. From heated debates about the likelihood of its bankruptcy to beating Intel Corporation (NASDAQ:INTC) at the x86 game with its new chips, we’ve seen it all. But one particular topic that keeps coming back to the Intel-AMD rivalry scene is, why doesn’t Intel just acquire AMD and get rid of its smaller competitor while acquiring its GPU IP, once and for all? In this article let’s take a look at exactly that, and have a better understanding of it all.
Let me start by saying that most major governments across the globe have policies in place to promote competition and to curb monopolies. If there’s just one company selling a particular kind of merchandise, product or service, it would gain a huge pricing power. Governments don’t want that, as it ruins the competitive scene and results in an indirect way of consumer exploitation. So the U.S government has “anti trust” laws in place that promote competition in favor of consumers.
Now let’s come back to the Intel-AMD scene. These two companies collectively command almost all of the consumer CPU segment; the chart attached below highlights just that. While Intel commands about 80% market share, AMD operates with around 20% of the market. But basically, the semiconductor giants collectively command almost all of the CPU market. This situation has a term for it -- duopoly.
(Source: Market Realist)
If Intel were to acquire AMD, it would end up with an almost 100% market share, and it would be termed as a monopoly due to lack of competition. It would be in a direct violation of the anti trust laws existing in the U.S that were set up with the primary goal of preventing monopolies, cartels and collusions. The FTC has made it clear that government authorities would intervene whenever such situations arise:
“The antitrust laws prohibit conduct by a single firm that unreasonably restrains competition by creating or maintaining monopoly power. Most Section 2 claims involve the conduct of a firm with a leading market position, although Section 2 of the Sherman Act also bans attempts to monopolize and conspiracies to monopolize. As a first step, courts ask if the firm has "monopoly power" in any market. This requires in-depth study of the products sold by the leading firm, and any alternative products consumers may turn to if the firm attempted to raise prices. Then courts ask if that leading position was gained or maintained through improper conduct—that is, something other than merely having a better product, superior management or historic accident. Here courts evaluate the anticompetitive effects of the conduct and its procompetitive justifications.”
So there’s a good chance that Intel wouldn’t get the regulatory approval to acquire AMD in the first place. Let’s say, for the sake of an argument, Intel managed to acquire AMD somehow. Due to the currently existing legal framework in the U.S, government authorities might ask Intel to:
- Either shut down operations, or
- Pay a hefty fine and allow competitors to spring up, or
- It could be asked to just sublicense its x86 architecture to other semiconductor firms such as Qualcomm, Cavium, Texas Instruments or MediaTek, to promote competition in the market, just like how ARM does it right now.
So basically, Intel’s efforts to eliminate one competitor (AMD) could result in the creation of several more competitors, or worse, attract strict legal action that could put Intel’s day-to-day operations in jeopardy.
Doesn't make any sense
Now that we’ve seen this acquisition from the standpoint of legalities, let’s take a look at this theorized venture from a business perspective.
Advanced Micro Devices, Inc. hasn’t been able to beat Intel at the x86 game for the most part of the past decade, so Intel won’t really be interested in acquiring the CPU business of a competitor that offers inferior products. AMD hasn’t been much of a threat to Intel in the desktop-class CPU segment lately due to which its CPU business may not have any significant value in this theorized venture.
However, AMD does own competitive GPU IP which allowed its CPU chips to offer better graphics performance compared to Intel’s integrated graphics solutions. You’d think that Intel would acquire AMD for its GPU IP, but that won’t necessarily be the case here.
Intel and AMD were reportedly in talks of striking a GPU IP licensing deal earlier this year so that the former is able to give a much-needed boost to its integrated graphics solutions. If Intel is able to access all the necessary IP that it desires, why would it go through the pain of acquiring AMD? It just doesn’t make any business sense.
(Source: Market Realist)
More to the point, AMD isn’t the leader in the GPU segment either. Nvidia has been the dominant name in the discrete GPU segment for quite a while now, and I think that if Intel was truly interested in acquiring a company with strong GPU IP, Nvidia would make a better investment option.
Cost of acquiring Nvidia would be higher, compared to buying out AMD, but at least this way Intel would be taking over an industry leader with a stable stream of cash flows.
The bottom-line is that there is too much hassle for Intel to acquire AMD. The legal risk alone makes pursuing such a deal simply a waste of time and resources. I believe that Intel would probably be better off by returning the surplus cash to shareholders in the form of dividends, that would have otherwise been spent on the above-mentioned theoretical acquisition of AMD.