Intel Corp (INTC) has agreed to pay Advanced Micro Devices (AMD) $1.25 billion to settle long-standing disputes between the two chipmakers. This immediately takes care of the AMD lawsuit that was slated to come up for trial in roughly five months time. 

Intel agreed to a set of business practices, including non-payment of financial incentives to companies that favored Intel chips over AMD and training of sales staff accordingly. We believe there are grey areas here, since Intel has in any case repeatedly denied such foul play. 

The more significant outcome is the company’s release of AMD from the provisions of the x86 deal entered into in 1995. At that time, AMD had acquired the right to manufacture chips based on the x86 architecture. However, the Globalfoundries spinoff raised the issue of a fresh license, which Intel said was necessary and AMD said was not. AMD also agreed to drop all charges against Intel. 

The two companies will also cross-license certain patents over the next five years and meet at regular intervals to mutually solve issues, failing which there will be an attempt at third-party mediation. 

Intel and AMD dominate the microprocessor market for computers, although Intel is the larger player with an 80% market share. Although Intel may have had to part with more than it bargained for since the recent EU fine turned things in AMD’s favor, resolving the issue lets it go ahead with its mobile strategy. 

The computing market is currently slow-growing and mature, with other segments such as handsets and consumer electronic devices expected to drive faster growth. Intel has strong competition here in the shape of ARM Holdings (ARMH), whose less capable power-efficient chips are much better suited to products in these high-growth markets. 

The deal will generate much-needed cash for AMD and help it go ahead with its growth strategy. The company will be able to sell its entire stake in Globalfoundries and remove some of the debt on its balance sheet. But success continues to hinge on its ability to churn out technology that could compete with Intel’s.
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