Intel Seeks to Strip AMD of Rights to Its Products

Arbitration proceedings begin today to solve a chip manufacturing dispute between Silicon Valley rivals Intel Corp. and Advanced Micro Devices Inc., which could put millions of dollars of semiconductor sales at stake.

The fight focuses on a 1982 licensing agreement between the two companies and AMD’s right to manufacture some of Intel’s products, including the popular 80386 32-bit microprocessor.

Intel wants to strip Advanced Micro Devices of its right to the Intel products because AMD’s peripheral chips, its contribution to the agreement, have not been as successful as both companies had expected.

The Intel-designed chip, which has become an industry leader, drives a new generation of microcomputers, including IBM Corp.’s Personal System/2 and compatible machines. Other companies, such as Texas Instruments, are designing systems around the chip, and annual worldwide sales could be between $300 and $500 million, analysts say.

Analysts said the Intel-designed chips represent between 10% to 20% of AMD’s business.

Now that AMD and Intel are making money following two dismal years, they both want to hold onto their market shares and continue the upward trend, analysts said.

Under the terms of the agreement, Intel gave licensing rights for certain microprocessors to AMD in exchange for AMD-produced support products, including peripheral chips.

But the peripheral chips have not been as successful as both companies had hoped, analysts said.

“What they both thought were the support chips needed were not the popular choice by the market,” said analyst Michael Gumport of Drexel Burnham Lambert Inc.

With the recent trend favoring semi-custom or ASIC chips in the market, the peripheral chips have not sold well, said S. G. Warburg analyst Eli A. Sayegh.