April 24, 2003 -- Bring a blanket and some sandwiches. It's time again to watch the greatest battle in high tech.
The history of the digital age is filled with great business feuds: Apple and Microsoft, HP and Tektronix, DEC and Data General, Ellison and Gates, IBM and everybody …
But no feud has been deeper, longer, more expensive, and more bitter than Intel vs. Advanced Micro Devices. Indeed, Intel vs. AMD may be described as THE great American business grudge match, the Hatfields and the McCoys of our time.
And it has all the right juicy parts. Oedipal complexes, sibling rivalries, multigenerational blood-hatred, fame and scandal, government investigations, vast wealth, and millions and millions of dollars dumped into the laps of happy lawyers. All it needs is a couple of ripped bodices (and for all I know, they are there) to make a perfect tabloid cover story.
Best of all, this feud has probably done more to define life in the modern world over the last half-century than any other series of events. We are all the beneficiaries of these three decades of hatred.
Mother Company of Silicon Valley
The story actually predates the founding of Intel and AMD. You probably know the story of Fairchild Semiconductor, the great mother company of modern Silicon Valley. In the late '50s and early '60s, Fairchild was the hottest company on the planet. Not only did the company build the first integrated circuits, but it may have been the single greatest repository of entrepreneurial talent in history.
Fairchild was led by a charismatic figure, Robert Noyce, who, though he was only in his early 30s, was a father figure to his 20-something employees. With no one was this father-son relationship stronger than between Noyce and a young Fairchild salesman named Jerry Sanders.
Sanders was a self-made man, a wild kid from a rough past who had come to California to become a movie star. Instead, he became a chip salesman, probably the best ever, living out his fantasy by living beyond his means in the Hollywood hills. Sanders was cocky, outrageous, and, some say, the cleverest man in a company filled with geniuses.
In Noyce, the troubled Sanders found the father he never had. And in turn, Noyce protected the young man from the many scandals and rumors and complaints that followed in his brilliant wake.
There were other talented young men at Fairchild, among them the future founders of more than 100 companies. And in this group was a fiery, competitive, and equally brilliant young Hungarian refugee-scientist named Andy Grove. Grove was respected for his brains and competence, and feared for his temper, but no one recognized that behind lab coat of the scientist beat the heart of the greatest businessman of the age.
AMD, Intel Are Founded
In the late 1960s, Fairchild, resentful of its parent company, losing ground to the more methodical Motorola and too swollen with aggressive talent, exploded like a seed pod, scattering talent all over Silicon Valley. One of the first to go was Bob Noyce, who teamed up with his Fairchild co-founder and chief scientist Gordon Moore to found Intel Corp. in 1968. They took with them, as their first employee, Andy Grove.
One of the last to leave Fairchild in that first wave was Jerry Sanders, who founded AMD in 1969.
From the beginning, the two companies could not have been more different. Intel was the darling of the business world, a company run by superstars. It quickly raised its startup capital and roared into the future. Before long, it became known as high tech's great innovator. Its crowning achievement came within a year of Intel's founding: the invention of the microprocessor.
AMD, by comparison, was the Lost Child of Silicon Valley. Sanders spent months begging venture capitalists around the country for startup funds. As he would say later, "Bob Noyce always said that it took [Intel] five minutes to raise $5 million. Well, it took me 5 million minutes to raise $5." VCs were justly worried: Sanders himself admitted that he didn't know the difference between a balance sheet and an income statement.
But in the end, Sanders found the money. Then, in a stroke of marketing genius, he asked Noyce to give AMD the second source contract for Intel's chips. Noyce, with his usual soft spot for Hollywood Jerry, agreed. Neither knew at the time that their little deal would be worth tens of billions of dollars.
Intel Plays Hardball
At the beginning it didn't matter; in fact, the deal proved mutually beneficial. After both firms nearly died in the 1974 recession, they emerged to find a new world defined by the microprocessor: personal computers, video games, calculators, watches and minicomputers.
Processors, which had been such a low-demand business that Intel had almost abandoned it early on, were now proving to be one of the biggest gold mines in the U.S. economy. Demand was so high that, in 1976, when Sanders asked for second source rights to the microcodes of Intel's processors, an overburdened Intel happily agreed.
Then, in 1979, Intel, having already defeated most of its competitors, landed the biggest processor contract of them all: the IBM PC. This deal made the Intel x86 processor the defining chip architecture of the modern world, a position it still holds today. AMD, meanwhile, rolled along at a fraction of the size of Intel, focusing mostly on logic chips, not processors. In 1982, when the two companies renewed their agreement, the press didn't even cover the news.
But by the mid-1980s, everything had changed. The bottom fell out of AMD's businesses one by one, until the company teetered on bankruptcy. As Jerry Sanders saw it, he had one chance for survival: to play off the agreement and devote AMD's remaining resources to cloning Intel chips.
At an earlier, simpler time, this matter might have been settled amiably. But this was a different Intel now. Noyce and Moore were slowly pulling away from the daily operations of the firm, leaving it in the hands of Andy Grove. And Andy, as always, played hardball. He had already sued every other potential cloner into the ground — all the while threatening his own customers that if they bought from a competitor they would be dropped to the bottom of the delivery list — the chip world's version of confinement to the outer darkness.
Then he canceled the AMD contract. Jerry Sanders turned around, demanded the arbitration allowed by the contract, and then won a judgment against Intel. While Intel fumed, AMD merrily set about cloning the Intel 80286 and 80386, perhaps the two most influential chip designs of all time.
The Feud Continues
And so it went, back and forth, suit and countersuit, for the next decade. In the meantime, AMD went through one of the wildest stock price roller coasters ever seen: Every change of legal judgment cost or gained the company hundreds of millions of dollars. It only grew more vicious with the sudden death of Bob Noyce in 1990.
The Intel-AMD case, the "Bleak House" of high tech, didn't end until January 1995, after both companies had spent an estimated $200 million in legal fees. It ended, as usual in such matters, not with a bang, but a compromise. Grove's and Sanders' people essentially negotiated behind their backs. By now, the newest generation of processors were 1,000 times more powerful than the original devices covered by the contracts.
Grove and Sanders have yet to shake hands.
In retrospect, the Great Chip Feud had been beneficial for everybody. Intel, sitting in the catbird seat of a near-monopoly, had been forced to stay innovative, to maintain Moore's Law. AMD had learned to become a true technology company (its Athlon chip was better than its Intel counterpart), and Sanders a great businessman. The rest of us have been rewarded with the digital revolution, one of the miracles of the age.
Sanders and Grove are now retired, and two new CEOs, Hector de Ruiz and Craig Barrett, now run, respectively, AMD and Intel.
But the feud continues. On Tuesday, AMD introduced a new 64-bit processor, targeted at high-end servers, called the Operon. Once again, in the spirit of Jerry Sanders, the company is betting everything on this new model.
Meanwhile, in expectation of this announcement, last Sunday, Intel — in the spirit of Andy Grove — slashed prices on its fastest chips.
The battle has again been joined. The rest of us, who will soon see the benefits in new technologies, products and companies, can only stand on the sidelines and cheer. Silicon Valley is back to its old nasty self.
Michael S. Malone, once called “the Boswell of Silicon Valley,” most recently was editor-at-large of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com.