AMD Opts for Two-Front War

The chipmaker's decision to take rival Intel to court is a questionable one.
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AMD (AMD) - Get Report has stepped up its battle with Intel (INTC) - Get Report in recent years, focusing mainly on improving its competitive position via technology and manufacturing.

Now, AMD has turned to the court system for help.

Sunnyvale, Calif.-based AMD sued its larger rival Tuesday, alleging global coercion of 38 large-scale computer makers, small-system builders, wholesale distributors and retailers across three continents. AMD said that Intel illegally inflated computer prices and limited choices for businesses and consumers, and it says Intel has an illegal monopoly because of its actions.

The 48-page suit, filed in Delaware, failed to move either company's stock, but the case does represent a new strategy for AMD. Whether it's a good one or not remains to be seen.

Legal matters can drag on for years despite hopes for an imminent conclusion (see

Rambus

(RMBS) - Get Report

). Also, while one party may emerge a winner in the courtroom, it doesn't mean it will take a victory lap in the business world.

"AMD's approach is based on throwing everything but the kitchen sink at Intel in the hopes of getting something to stick," said analyst Hans Mosesmann with Moors & Cabot in a morning research note. "This move may actually weaken AMD's case, given that some of the examples provided of coercion seem to us as business as usual in the semi industry; which may take the punch out of legitimate acts where Intel may have crossed the line."

AMD seems to have chosen now to pursue its case because of a recent ruling by the Fair Trade Commission of Japan, which found that Intel violated its antimonopoly act. Piling on top of that, AMD has cited numerous other occasions in which Intel has allegedly wielded unfair influence on its customers. AMD even cited

Apple's

(AAPL) - Get Report

decision earlier this month to switch its processor platform from

IBM

(IBM) - Get Report

to Intel.

"Whether through higher prices from monopoly profits, fewer choices in the marketplace or barriers to innovation -- people from Osaka to Frankfurt to Chicago pay the price in cash every day for Intel's monopoly abuses," said AMD CEO Hector Ruiz.

Ironically, AMD has spent the last few years, under Ruiz' leadership, strengthening its competitive position by making better chips and improving its manufacturing facilities. The company's turnaround from follower to a true competitor has been impressive.

AMD was the first to add on 64-bit capabilities to its 32-bit processors, and its dual-core initiatives forced Intel to follow its path. After entering the server market in 2003, AMD's Opteron chip is a powerful counter to Intel's dominant Xeon processor. AMD also recently introduced its first chip for thin-and-light notebook computers.

Still, AMD's market share remains under 20%, while Intel essentially controls the remainder. AMD has been unable to crack Intel's hold on

Dell

(DELL) - Get Report

, the world's largest computer maker, and Intel hit a home run with its Centrino brand of mobile-networking technologies.

Following its decision

to spin off its flash memory unit, AMD will soon be left with just its computer microprocessor unit. The flash business will chop off about 40% of AMD's sales base, leaving it looking even smaller compared with Intel, the world's largest chipmaker.

One would expect AMD's technology to be able to win out if it can consistently, and over a sustained period, produce better products. It has made strong inroads with

Sun Microsystems

(SUNW) - Get Report

with a new line of innovative blade servers soon to hit the market. AMD also has extensive product lines at IBM and

Hewlett-Packard

(HPQ) - Get Report

.

Getting to this point technologically and manufacturing-wise hasn't been easy for AMD, but now AMD wants to fight Intel on another front. This won't be easy either.