Intel Gets Slammed in Brussels

The European Commission rules Intel stifled PC processor competition, harming consumers. AMD rejoices; Intel will appeal

By Andy Reinhardt

Justice was severe, if not exactly swift. After an investigation that dragged on nearly nine years, on May 13 the powerful Competition Directorate of the European Commission slapped California-based semiconductor giant Intel (INTC) with the largest fine ever levied in an EU antitrust case and placed significant, but as yet vague, restrictions on Intel's future use of rebates and other sales incentives to spur sales of its market-leading microprocessors in Europe.

The Commission's €1.06 billion ($1.45 billion) fine amounts to 3.8% of Intel's $37.6 billion in 2008 revenues (it could have been as high as 10%) and about 2.4% of Intel's estimated x86 PC processor sales in Europe during the period covered by the case, from 2002 to 2007.

The reverberations of the closely watched case will be felt from Warsaw to Washington. For the second time in five years, the EU has landed a major antitrust blow against an American tech giant. In 2004, European competition authorities declared Microsoft (MSFT) an abusive monopolist and fined it more than $650 million. The agency also is currently investigating the licensing practices of mobile phone chipmaker Qualcomm (QCOM) and is keeping a close eye on Google (GOOG).

While some Americans object to what they see as overreaching by bureaucrats in Brussels, the Europeans say their tough tactics have defended consumer interests at a time when U.S. antitrust prosecutions ground to a halt under the Bush Administration. But with signs now emanating from the Obama Administration that the government may become more proactive in antitrust, the Intel decision comes at a decisive moment.

The Europeans could provide fodder for an inquiry into Intel's business practices launched by the Federal Trade Commission in 2008. On May 13, the EU's steely competition commissioner, Neelie Kroes, described bluntly that her agency's long investigation had "uncovered serious wrongdoing in the x86 processor market," including proof that Intel had given "wholly or partially hidden" rebates to computer makers on the condition that they buy most or all of their x86 processors from Intel and not its smaller rival, Advanced Micro Devices (AMD).

"Millions and Millions" Harmed

The Commission also found that Intel had made direct payments to some PC makers to delay or cancel entirely the launch of AMD-based computers, and had paid German PC retailer Media Markt to stock only Intel-based PCs—a claim that Intel vehemently denies.

"We find that Intel abused its dominant position in the market for x86 computer processing units," Kroes said. "Intel used illegal tactics to exclude its primary competitor…[it] did not compete fairly." The result, she asserted without offering specific proof, was that Intel's actions harmed "millions and millions" of European consumers, primarily by denying them greater choice in PC processor suppliers.

Intel's response was immediate. "Intel takes strong exception to this decision," said Chief Executive Paul Otellini in a statement released minutes after the EU announcement.

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