Silicon Insider: Battle of the Microchip Giants

March 10, 2006 — -- Once again, it's Intel, AMD and all that Viiv ...

The greatest curse you can put on a company is, May you have only one real competitor. It is a special kind of hell -- the corporate equivalent of being handcuffed for the rest of your life to someone you have a homicidal hatred of, and who, in turn, devotes every hour of every day to figuring out ways to destroy you.

Think Coke and Pepsi, Hertz and Avis. Here in Silicon Valley, we have our share of these lifelong feuds: Apple and Microsoft, Oracle and Microsoft, Netscape and Microsoft … etc.

But the greatest, nastiest, costliest and most enduring feud in Silicon Valley -- and in all of high-tech -- is the 30-year-old fight between Intel Corp. and Advanced Micro Devices. What makes it particularly memorable -- and bitter -- is that it deals not only with products and markets but with friendships, personal animosities, even paternal loyalties.

Over those three decades, the fight between Intel and AMD has been the bloodiest, most vicious -- and ultimately most rewarding for us consumers -- sideshow in tech. Intel versus AMD is the Jarndyce and Jarndyce of electronics. It stretches back so far in time that its origins are largely lost in the mists of history; even many of the original principals are either retired or dead.

Yet even today it is fought as ruthlessly as ever -- perhaps because the stakes are so huge: Intel wants to consolidate its control of the multibillion-dollar microprocessor industry to turn its full attention to a serious new competitive threat from the Far East; and Advanced Micro Devices just wants to survive.

Starting From the Beginning

As it happens, I was around for the beginnings of this feud and have known most of the players. So, brief summary of the war to date:

Intel Corp. was founded in 1968 by two senior executives who jumped from troubled Fairchild Semiconductor: Robert Noyce and Gordon Moores, both legendary figures in the history of electronics. They brought with them as their first employee a brilliant and irascible Fairchild exec named Andrew Grove. Given the blue chip nature of the founding team, Intel was fully funded almost overnight and quickly positioned itself as a leader in the memory chip business.

In late 1969, Intel was approached by a failing Japanese calculator company, Busicom, to make a new kind of chip that combined memory, logic and input/output on just four chips, with the goal of ultimately putting it all on one monolithic sliver of silicon. Despite real concerns, Intel took the contract … and ultimately invented the most important product of the modern world, the microprocessor. Ultimately, it abandoned the hugely lucrative memory business to focus exclusively on the microprocessor and turned itself into one of the greatest companies on earth.

Advanced Micro Devices was also formed out of Fairchild, but its pedigree was far different. Jerry Sanders, the leader of the group of eight who founded the company, was a flamboyant salesman who had spent most of his tech career at Fairchild's sales office in Hollywood rather than at headquarters in Mountain View.

Where Noyce and Moore merely had to announce their partnership to have investors flood them with offers, Sanders and crew spent many miserable months trying to raise enough cash to get under way. And when they did, AMD, reflecting its founders, proved to be a market-driven firm that specialized in second-sourcing chips made by other companies.

Collaborators First, Then Competitors

Second sourcing was a big deal in the early days of the semiconductor industry, because manufacturers didn't really trust chip makers to have a high enough yield on new devices to meet their needs; hence, they wanted a second company licensed as a backup. The chip makers in turn tended to offer second-sourcing deals to companies they liked and that posed no competitive threat. And for Intel, AMD offered both -- it was small and technologically second-rate; and just as important, the relationship between Bob Noyce and Jerry Sanders has always been, since the early Fairchild days, that of a patient father and a mischievous son. Indeed, Noyce was far closer to Sanders than he was to Grove, which created an almost biblical tension.

Thus, in 1976, when Intel needed a second source for its new 8085 processor, it naturally turned to AMD. The dangerously open-ended agreement gave AMD the right to "copy microcodes contained in Intel microcomputers and peripheral products sold by Intel." At the time, the deal seemed no big deal -- it was barely even mentioned in industry trade magazines. The deal got even less attention when it was renegotiated in 1982.

Roll forward another half-dozen years. In the early 1980s, AMD was in financial trouble; its other businesses were failing one after another. Sanders, desperate to save his company, tried one of the greatest business Hail Marys of the century: He pulled out the old contract with Intel, realized he had some legal wiggle room, and set out to clone Intel's crown jewel: the 80x86 microprocessor line, the heart of most of the world's PCs, and already one of the most valuable pieces of intellectual property on the planet.

Not surprisingly, in January 1987 Intel responded by canceling its agreement with Intel. AMD sued for breach of contract. AMD's counsel, Richard Lovgre, predicted the whole matter would take 12 weeks. In a shocking decision, an arbitrator ruled for AMD in June. Sanders raced ahead, cloning the latest Intel chips. Intel countersued, and won. AMD's stock collapsed, nearly killing the company. It fought back.

Eventually, in January 1994, the case reached federal court. Both principals (now bitter enemies) played to their strengths: Sanders used his charm on the jury, Grove his tough command of facts. Ironically, both failed. Sanders left the jury unmoved, but Grove, to the astonishment of the whole industry, actually tripped himself up with some 15-year-old testimony before Congress. AMD won the case.

Intel, needless to say, prepared to sue again -- it was blood now between Sanders and Grove. But this time, cooler heads prevailed. In a series of secret meetings, senior executives at both companies met and came up with a compromise -- and only then presented it to their respective CEOs. On January 11, 1995, 19 years after the agreement was first signed, eight years after the first lawsuit, and after hundreds of millions of dollars in legal costs, Intel and AMD finally settled. Though both Grove and Sanders agreed to shake hands over it, they never did.

Legal Battle Didn't End the Competition

But if the legal battle was over, the business war had just begun. Intel was now one of the most important companies, perhaps the most important company, in all of high technology. AMD, meanwhile, had learned how to not only copy, but actually innovate, new chips. And for the last decade, the two companies have fought tooth and nail. Intel has tried every trick it knows -- modifying the 80x86 architecture with proprietary features outside AMD's license, bullying customers to the brink of a Justice Department investigation, even branding its chips with trademarked names (i.e., Pentium).

AMD, often with the support of major customers that didn't want to be at the mercy of Intel, introduced its own distinct family of 80x86 processors as the K series. With each new generation of these chips, AMD's fortunes rose and fell according to how well it anticipated the performance, and how well it timed the announcement in relation to Intel's offering. Not surprisingly, AMD's stock performance between 1980 and 2005 has been one of the craziest roller coaster rides ever.

It was with the Athlon K7, introduced in 1999, that AMD at last caught Intel, forcing the far-bigger company to scramble in response. By then, Andy Grove had retired, as one of the most admired business executives of the age. Now, triumphant at last, a weary Jerry Sanders retired as well, the second half of his career a grim counterpoint to the fun and flamboyant first half.

After that, the great war seemed to calm to a dull roar. A year ago, when I was working on a story about Intel, its senior executives all but dismissed the fight with AMD as history -- even to the point of ceding to it the high-end of the microprocessor market. AMD, they said, is heading down an alley, building specialty superchips few people want anymore. In contrast, Intel, they said, was changing its strategy to lower-cost multicore chips aimed largely at the business and consumer markets. Privately, they admitted that these days they were far more worried about Samsung than AMD.

A New Twist to the Feud?

Perhaps, but the news of the last week suggests that try as they might, Intel and AMD will never really escape each other. Last month AMD announced AMD Live, a program to build processors for "full-featured" home entertainment PCs. And now, this week, Intel announced a powerful new chip design, its first since the Centrino, called Viiv. Though the details are unclear, it too seems to be targeting the emerging home entertainment box market.

And once again Intel is trying to extricate itself from its eternal embrace with AMD, this time by adding a million lines of proprietary software code to the Viiv chips -- presumably so that applications designed for AMD's chips will be incompatible with Viiv, or vice versa. If so, it remains to be seen what the Justice Department will say about this.

So, who cares about an endless feud between two giant corporations? All of us, whether we know it or not. Moore's Law is the most influential force in modern society, propelling us forward at an extraordinary yet predictable pace. And you can make a very strong argument that Moore's Law has been sustained for the last 30 years not so much by some internal scientific inevitability but by the fact that AMD has forced Intel to remain perpetually innovative, and Intel has forced AMD to forever punch above its weight. And we'll get a good lesson on what that means this fall, when AMD Live, Intel Viiv and Microsoft's new Vista operating system kick off one of those great land rushes for the next generation of PCs and other consumer electronics products.

When that happens, and you are waiting in line at midnight, be sure to silently thank Jerry Sanders, Andy Grove and the late, great Bob Noyce, who only looks more clever as the years pass.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone, once called the Boswell of Silicon Valley, is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is best-known as the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public-television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNEWS.com "Silicon Insider" columnist since 2000.