AMD leaves Lenovo out of antitrust complaint

AMD's antitrust lawsuit against Intel contains no mention of Lenovo, the world's third-largest PC vendor.

Advanced Micro Devices's (AMD) 48-page antitrust complaint against rival Intel reads like a list of major players in the global PC industry, with one glaring exception: there's no mention of China's Lenovo Group.

Filed last Tuesday in the U.S. District Court for the District of Delaware, the AMD complaint alleged that Intel used its monopoly position to stifle competition and maintain its dominance of the microprocessor market. Intel has denied the allegations.

To make its case, AMD alleges that Intel repeatedly used discriminatory financial incentives and threats -- which AMD called "knee-capping" -- to keep PC makers from doing business with AMD. The allegations involve some of the biggest names in the PC industry, including Dell, Hewlett-Packard, Acer, Sony, Gateway, and IBM, among many others.

But the omission of Lenovo from the complaint -- apart from the references to IBM's PC business, which Lenovo acquired earlier this year -- stands out because AMD has done slightly better in China than in other countries, and Lenovo is its most prominent customer there.

AMD had a market share of around 10 percent in Asia during 2004, compared to 11 percent in China, according to Kitty Fok, vice president of IDC Asia-Pacific's Central Research Group. AMD sold 1.7 million processors in China during 2004, making the country its largest Asian market, she said.

AMD executives were not immediately available to comment on why Lenovo was not mentioned in the complaint or whether it will be subpoenaed to provide details of its relationship with Intel in China. But the history of Lenovo in recent years demonstrates that AMD can win significant business from an important Intel customer under the right circumstances.

Lenovo, which was once known as Legend Holdings, is China's largest PC maker and the third-largest PC vendor in the world. The company started selling PCs in 1990 and introduced the first Pentium-based PC made by a Chinese company in 1993. By 1998, Lenovo had become Intel's biggest customer in China and relations between the two companies were strong.

"Lenovo has always had a very good relationship with Intel," said Helen Lau, an analyst at Celestial Asia Securities Holdings.

Things were so cozy that when Lenovo produced its millionth PC in 1998, former Intel Chairman Andy Grove attended a ceremony to mark the occasion and took the PC back to Intel, where it became part of the company's museum collection.

Throughout this period and beyond, Lenovo exclusively sold PCs based on Intel processors and was widely considered to be one of Intel's most important customers because of its leading position in China. The strength of that relationship was likely based on the volume of sales that Intel did with Lenovo, and could be compared to relationships between Intel and other large PC vendors, Fok said.

However, Lenovo broke with its long-standing practice of selling only Intel-based computers in June 2004 and introduced a line of consumer PCs based on AMD's Athlon XP and Athlon64 processors. Over time, that has expanded to include a line of desktop PCs designed for corporate customers.

Lenovo's initial decision to use chips from AMD came during a difficult period for both companies. Lenovo was in the midst of a corporate restructuring plan to recover from a failed attempt to diversify its business scope. At the same time, HP and Dell were gaining market share on Lenovo. Meanwhile, Intel was scrambling to deal with a series of product missteps and its product roadmap was in disarray.

In the midst of these developments, Lenovo opted to use chips from AMD because they were less expensive than processors from Intel, according to Lau. "It let them go after the low end of the market," she said.

The decision to offer AMD-based computers gave an immediate boost to Lenovo, particularly in small cities and rural areas where PC sales are rising fastest in China and customers are particularly price-sensitive. At a press conference in Hong Kong during November 2004, Yang Yuanqing, Lenovo's current chairman, told reporters that AMD-based PCs accounted for around 20 percent of the company's total PC shipments. "That's quite a lot," Lau said.

While Lenovo has had success with low-end PCs based on processors from AMD, Lau doesn't expect to see the company start using AMD chips in high-end PCs or servers. "They will still rely on Intel, their long-term partner, for their high-end products," she said.

Whether or not AMD will claim that Lenovo faced retaliation from Intel for selling AMD-based PCs is not clear. AMD's complaint makes no mention of any such incident. However, the complaint does allege that other major PC vendors, including Gateway and HP, faced threats of retaliation from Intel for doing business with AMD.

Lenovo declined to comment on how Intel executives reacted last year when informed that the company planned to introduce a line of AMD-based PCs.

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