China Tech News reports on the latest in processor manufacturer-PC assembler love fests:

Chinese computer giant Founder has signed a deal with Intel (INTC) in Beijing to upgrade the companies’ current cooperation.

Based on their current cooperation on laptop computer sales, the two sides will develop a deep strategic cooperation on mobile products and services. Intel will continue providing technology support and assisting Founder in establishing three joint labs which are located in the three cities of Beijing, Shanghai and Suzhou, respectively. In the meantime, they will strengthen development and investment in high-end products and marketing initiatives.

As romantic as “deep strategic development” may sound, this is not a trip to the corporate altar. Rather it’s just an example of two multinationals’ bitter conflict in a big, lucrative market. Intel has been in China since 1995, with AMD entering in 2001. Despite Intel’s early entrance, AMD quickly gained market share. China Daily reports that 28% of China’s PCs now use AMD processors. Both companies are fighting over domestic customers such as Lenovo, Founder, TCL, Haier, and Tsinghua Tongfeng (not to mention HP and Dell).

For domestic firms this means lots of goodies in the form of R&D subsidies, “incentive” handouts of cash, and discounts on processors. While this is a world-wide practice, the stakes are much, much higher in China. The Chinese government’s obsession with aggressive technology adoption and the tremendous growth in both consumer and commercial PC markets make China a strategic linchpin for both Intel and AMD’s future.

So what do the suitors Intel and AMD get in return? If we take a look at Founder’s history with them, maybe not too much.

AMD and Founder built a “joint development lab” in 2003. The “…Lab plans to develop solutions based on what consumers value in their computing experience involving relevance, accessibility and usability” for home digital media centers. I’ve no idea what happened to the lab, but in the spring of 2004 Founder finally agreed to sell PCs with AMD processors.

But Founder is a fickle inamorata. In the summer of 2004, a few months later, Intel signed its first memorandum of understanding with Founder. For what? “The agreement offered technological support and training for the two company’s cooperation on digital home service.” Hmmm, I wonder if that lab that AMD invested in got some new toys.

In 2006 Founder signed a deal with AMD to use their AMD64 processors in desktops. A spokesman noted that the deal “would not affect their relationship with Intel”. While many PC manufacturers use some combination of Intel and AMD, the whole point of these agreements is to expand business with the customer. And that would be at the expense of the only other competitor, Intel.

Allowances can be made for different kinds of PCs configured for different market segments using processors from one or the other manufacturer. However, Intel and AMD are now competing in all computer processor categories. In addition to servers, desktops, and laptops the battle has even extended to the one laptop per child (OLPC) project. This digital divide closer (running an AMD processor) now has a new competitor with the Classmate PC developed by Intel. Add to this the recent trial of the Farmer PC (developed by Intel and Haier) and it’s evident that no platform is too small.

Intel and AMD are trapped in a war over market share that they can’t stop. AMD has become too competitive across product lines for Intel. Stepping back would only result in further market decline. Intel is too entrenched for AMD to step back. All their success in recent years would ebb before Intel’s size and money. They can only continue.

So Chinese firms can dally with one, then the other, to their advantage. The processor war brings investment and competitive pricing to the unfaithful. This, in turn, is critical in the other war, the one between PC companies in China. China may be a strategic linchpin for the processor companies, but for PC manufacturers it’s simply the future. There is no other country in the world that presents a better opportunity for their commodity business. Deals on processors, the most expensive component in standard PCs, are vital if a company is to compete on price.

Where does this leave the polyamorous Founder? Pretty much wherever it wants to go. By playing one processor manufacturer off the other, Founder has gained better pricing and R&D help. If the rumors are true and Haier buys Founder, there may be movement closer to the Intel fold.

Or maybe Haier will begin to see the benefits of an open relationship.

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