Intel--Anti-competitive or No?
Posted by: Cliff Edwards on May 13, 2009
CORRECTED second graf to add dropped word “billion”
As one might expect, Intel CEO Paul S. Otellini this morning denied that the chipmaker has engaged in anti-competitive practices, as alleged by European Union antitrust regulators today. “Significant evidence was either ignored or disregarded,” Otellini told reporters on an early morning conference call.
The European Commission fined the chip manufacturer a record 1.06 billion euros (about $1.4 billion U.S.)for anti-competitive behavior. Intel announced immediately that it will appeal the decision, but the case is expected to take years to wind its way through the process. In the meantime, Intel must pay the fine or submit a bond within 90 days.
The wording of the initial EU statement certainly raises more questions than they answer about whether unfairly locked rival Advanced Micro Devices out of the market by tying customer rebates to the amount of Intel chips they sold. The heart of the case is whether those rebates were illegally tied to conditions that PC and server makers buy nearly all their x86 chips from Intel.
Otellini flatly denies that happened in the period European regulators were examining. The rebates “are volume-based. The more you buy, the less you pay,” he said.
Intel has seized upon language in the initial summary of findings that suggests European regulators found nothing in documents it seized from Intel offices and gathered from PC makers that verified the chipmaker tried to lock AMD out of the market through its rebate program.
Otellini noted that regulators instead seemed to base their findings on the fact that because they didn’t find anything, Intel and PC makers must have been actively hiding the truth.
It’s hard to say who might have the upper hand on appeal until details of the 500-page finding are parsed by experts.
But already there are questions about whether consumers were really harmed if Intel did engage in the illegal behavior. When AMD introduced demonstrably superior chips than Intel’s during a good part of the period, its worldwide market share jumped.
EU’s competition commissioner, Neelie Kroes, argues that if AMD was kept from getting an even higher market share because of Intel’s alleged practices, then consumers were harmed by a lack of choice.
That may be true, but it seems hard to prove legally unless it has documented evidence from PC makers that they canceled worthwhile projects that would have substantially benefited the consumer, or that they inflated prices on products because they couldn’t sell a lower-priced AMD offering.
Intel, perhaps in part because they feared the EU’s conclusion, just launched a new marketing campaign that describes how it has financed and developed many of the innovations we see today in the PC market.
The argument of consumer harm also is open to debate because there are only two chipmakers who supply the lion share of processors in the x86 market. Though AMD has been beset by financial woes over the past 18 months, both companies remain in business. And both companies’ fortunes appear on the surface to rise and fall with computer makers when they have a superior product roadmap.
Because of that, it would likely face tougher legal scrutiny in the United States, where the Federal Trade Commission and New York attorney general are probing similar allegations.
Then there’s the question about the size of the record fine. Japan a few years ago concluded that Intel engaged in anti-competitive behavior but leveled no fine. South Korea, which has a large and robust PC maker, in June 2008 fined Intel $25 million. When looked at through the earlier judgments, the European fine appears to be excessively punitive.
Indeed, Otellini argued that PC prices have fallen by a factor of nearly 100 in the period they examined, while AMD had some of its best years in terms of sales and profitability. AMD has said that more than 40% of Intel’s profits, some $60 billion in the period 1996 to 2006, were generated because Intel had an illegal monopoly on the market.
Certainly there are likely a lot of smiles at AMD’s headquarters right now. Executives lined up to applaud the EU decision. “The EU came to one conclusion: Intel broke the law and consumers were hurt,” said Tom McCoy, AMD executive vice president for legal affairs. “With this ruling, the industry will benefit from an end to Intel’s monopoly-inflated pricing and European consumers will enjoy greater choice, value and innovation.”
It’s taken nine years to the EU to come to its decision. But no one by a long shot should expect that this concludes the legal and competitive drama that intertwines the two companies.