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.

Reader Comments

Ante

May 13, 2009 5:52 PM

"In the meantime, Intel must pay the fine or submit a bond within 90 days." Would someone please tell me what does "submit a bond" mean actually ?

jabberwolf

May 13, 2009 5:59 PM

Hmm
Lets see:
EU accuses Intel of anti-competitive behavior
EU points to Intel deals to cheapen price if purchased in volume.
EU can't show how that's anti-competitive.

The only thing the EU has is AMD complaining they cant compete.

Conclusion: EU is a bunch of socialist rats, doling out punishment against competition.

Monty

May 13, 2009 6:06 PM

Who edits these things? 1.06 euros = US$1.4 billion? Wow, that's quite an exchange rate. Then there's this gem:

"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..."

PsycoJuana

May 13, 2009 6:15 PM

Seems maybe THEY AFTER OUR CASH!!!! Sue the GUYS making money so we can have some!

sipp

May 13, 2009 6:38 PM

It is amazing how quickly people come to conclusions about complex legal issues without even studying the evidence or the arguments.

As to the size of the fine: have you compared
that number with a calculation of harm caused?

Intel is a big company, it takes a big number to make a difference to them and deter further violations.

Ward

May 13, 2009 6:45 PM

"The European Commission fined the chip manufacturer a record 1.06 euros (about $1.4 billion U.S.)for anti-competitive behavior."

I know the dollar isn't worth as much as it once was, but there are limits ;D

gechrist

May 13, 2009 6:48 PM

What’s with the timing? Intel launches one of its largest marketing campaigns in years, only to have this news break the same week after 9yrs of investigation? The quote from the commissioner is also pretty suspect: “Neelie Kroes joked Wednesday that Intel would now have to change its latest global ad campaign, "sponsors of tomorrow," to "the sponsor of the European taxpayer." "I can give my vision of tomorrow for Intel here and now," she said. "Abide by the law."”

offsuit

May 13, 2009 6:53 PM

This doesn't have anything to do with "anti-competitive practices" or any other such horse manure. It's just plain naked theft, and everyone knows it. They make up these completely arbitrary and capricious "laws" so they can try to make Intel look like the bad guy, to distract from the fact that the real criminals here are, as always, the regulators.

Until one of these companies finally stands up and abandons the stupid pragmatic stance that crap like this is just a "cost of doing business", complain and appeal and try to get the fine lowered as much as possible, then pay it and continue on until the next time they get raped, it will go on, and it will get worse.

One of these companies needs to say, "no, shove your fine, oh and BTW, we're firing every single one of our EU employees, closing every one of our plants and offices, and cutting off all sales and support of our products in your market. Have a blast, we will not be robbed for being successful any more. Enjoy your AMD monopoly, hope that works out great for you when they realize how much they can charge with no competition... and don't come crying to us to come back when you find out. Screw you, we're done here. Pppppffffpt!" Only has to happen once, and it'll never need to happen again.

Google and Apple will be next in the crosshairs. Let's hope (beyond hope) that one of them has nads.

Ed

May 13, 2009 7:44 PM

The US should respond with an investigation into Nokia and SAP. Fine them 500M euros a piece. Then you'll see these pseudo tariff's from the EU end in short order.

Rilon Zaosina

May 13, 2009 7:46 PM

I'm agree with Monty. The editing is terrible and the article can is hardly read as it is written. Please hire an good editor immediately!@

Andre

May 13, 2009 7:53 PM

Competition enforcement needs to get strengthened in the light of such behaviour of Mr. Otellini.

As a citizen of the EU I am pretty annoyed about the inappropriate language found here. The EU competition authority does not "allege", it "decided" upon a complaint.

When you are convicted of a crime you cannot say the judge "alleges" you.


And of course disrepectful bullying of the competent authority ("regulators"):
"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."

http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/09/241&format=HTML&aged=0&language=EN&guiLanguage=en

"These illegal actions were designed to preserve Intel's market share at a time when their only significant rival - AMD - was a growing threat to Intel's position. This threat was widely recognised by both computer manufacturers and in Intel's own internal documents seen by the Commission."

...

"The Commission has specific, documented examples, of Intel paying other manufacturers to, for example, delay the launch of an AMD-based PC by six months, and to restrict the sales of AMD-based products to certain customers."

Magnus

May 13, 2009 8:03 PM

Just to clarify one thing with regard to this rather confusing article. Naturally to give quantity rebates is legal in all countries.
In most countries, including the EU, it is illegal to link these rebates to the total exclusion of a competitor, e.g. to say: dear customer, this rebate is only available if you do not use any AMD chips.
That the price of a PC has fallen by a factor of 100 is news to me. I recently bought a PC (Intel!) at a cost of EURO 999, while my first PC cost appr. 2000 German Mark, therefore prices have remained the same.
Regarding the comments that the EU is, for sinister reasons, trying to support AMD, is not convincing: AMD and Intel have invested heavily in Europe and are major customers of European suppliers like Wacker, BASF etc. Therefore even a socialist would agree to help one American company against another one does not make a difference to the European industrial landscape - though it may make a difference for the European consumer.

shadfurman

May 13, 2009 8:05 PM

This is ridiculous, I didn't even know about the questionability of whether or not Intel actually HAD payed extra for exclusive use of its chips (which I believe should be perfectly legal, it's common place in other markets) but this is as bad as the Martha Stewart case, we can't find any wrong doing... so therefore you MUST be lying. I think the EU is just looking for money, and AMD is a bunch of capitalist sissys. If it weren't for Intel AMD wouldn't even exist today.

Timber

May 13, 2009 8:05 PM

The supposed ilegal behavior by Intel may not be that difficult to prove. During the 1996 to period of time, AMD chips often performed as well, or better, than Intel chips offered during the same period of time. This occurred when the early Athlon chips were developed and at later times as well.

If Intel behaved in monopolistic behavior, then we all have been losers, because the profits that were denied to AMD most likely affected their decisions in regards to the design of new processors,or manufacturing technologies that they could afford to use. In many regards, the AMD platform, including both the processor and associated chipsets offer superior design to the Intel offerings. Without a doubt, Intel has been able to afford superior manufacturing technology that has benefitted them and allowed Intel to produce their current superior processors.

Might this have been quite different if profits from years past have gone to AMD instead of to Intel?

Zach

May 13, 2009 8:09 PM

RE: Monty

I thought I was just reading it wrong...I was starting to lose my mind reading that sentance over and over again...

LAO

May 13, 2009 8:13 PM

If I were to name the first anti-competitive entity that comes to mind, it wouldn't be Intel.

Tom Warner

May 13, 2009 9:27 PM

The EU is nothing but a band of extorionists. If you have ever had the opportunity to compare and AMD chip with and Intel chip you would know why Intel outsells AMD. The largest computer maker in the US is HP and they use AMD because it is inferior and therefore cheaper than Intel.

The people who write this stuff should get proofreaders.

prsionr86

May 13, 2009 9:33 PM

OMG, INTEL did this before and they are going to to fo it again.
THey are more than just a bully they are almost a Thug.
Just read the Compaq CEO statement where INTEL threatened they would stop shipping product if they start buying AMD product

At least the EU has the balls to stand up the ohh so might Corp

Kimb

May 13, 2009 9:40 PM

The allegation was that Intel was basing its volume discounts not on volume, but on the *percentage* of your computers you would sell with an Intel chip.

*That's* anti-competitive.

Offering a discount on volume of 100,000, vs. 10,000 is not.

tony

May 13, 2009 9:45 PM

I'm no junky of legalistic, or business jargon so I'll comment as a layperson; If AMD's sales and profits jumped during a period when they had a demonstratably superior product, then how does this show that the consumers didn't have a choice? This was during a time when Intel was using savy promotional tactics, but consumers were intelligent enough to go with a better product from AMD. To a layman, it seems that Intel is right; the Euro commision is not being impartial (nine years in the making nonwithstanding). Maybe the commision wants to bill Intel for nine years of "inconvinience" to their quality time, thus the very high fine. Of course, we could be seeing the first shots of an economic/political war. If AMD wants a bigger market share maybe it should hire more competent Promo people instead of crying to Big Brother,

blablabla

May 13, 2009 9:56 PM

neither Intel or Amd are european...And that because of this type of issues that union EU is born...

Jackie

May 13, 2009 9:56 PM

Amazing. AMD is speaking out of both sides of their mouth here. Their lawsuit claims Intel priced their chips below cost which cut them out of the market. Then in response to the ruling they claim Intel enjoys monopoly pricing. A simple review of Intel's publicly audited financial statements refutes the first claim while the fact that AMD cannot remain profitable due to the downward pressure on CPU prices refutes the second. Who do they think is reading this? Monkeys?

Bruce Potter

May 13, 2009 10:18 PM

My name is Bruce Potter, an ex-technology specialist and senior test engineering manager from Dell. Interviewed and first hired by Michael Dell himself! I had been utterly loyal to Michael Dell for years, until...!
Intel is lying as they always have!!! They use the law to do as much wrong as they can!! Its a fence to them where they find the means to cross where the law cannot charge them for wrong doing. They worked with Dell to make this happen in years past which caused Michael to become a billion air almost overnight at the great cost to this country and its moral fiber! It really hurts to expose them all over again as to think they are still so corrupt! They hurt the very fabric of this nations free enterprise system and undermined its required trust, even by every single PC company which existed besides Dell, as well as every nation they sell to such as; Japan, Korea, Taiwan, Germany, the US, etc, etc, Every one knows them and despises their power and deceptive practices, yet no one can stop them. I can write a best seller showing what they did and its great harm to so many, but I chose not to, for to revisit their evil is like going into a den of demons only to hate you ever went there. Their enormous misuse and use of lanquage and legalities filled with deflection and deception includes overwhelming rhetoric of justifications by smart attorneys who know no truth at all. They know the art of deception as though they invented it and possess the key element of it - a dead conscience!! They will fight you to your end and destroy you should you expose them in any way. Andy Grove began this with Michael Dell and the use of may other ambitious lieutenants who are now well rewarded and cleared from any current or further wreckage. Intel knows no virtue in any of humanity! 20 years and still they are doing this!!!! When will they be stopped???
This bit of words written for all the engineers and workers in the entire PC sector as well all the good company's who have been destroyed, - indignation!!! They will meet their maker one day soon and God hel them before that day to see and turn!
Remember, these two company's work by proxy!! Dell is probably washing their hands of Intel now but who knows! But mock my words, they will continue to use others somehow to do their dirty work so too keep their hands clean! Hopefully Dell is now running the other way from this trouble though they will never admit their involvement! Good to get this out again!

Damon Hastings

May 13, 2009 10:18 PM

This article misrepresents the EU's case as being solely about the volume discounts. In fact, the EU found evidence of Intel directly asking its customers to not sell AMD chips. If a customer refused, then that customer would find itself paying more than its competitors for Intel chips.

Such agreements were never written into the contracts, of course, but they were recorded in numerous secret email exchanges which the EU obtained via surprise raids.

And that's not even half of it. Man, did Business Week really leave all this out? Guys, if you want the whole story, I think you're going to have to read it on a website other than businessweek.com. Just go to Google News and choose any other news provider.

Amit

May 13, 2009 10:53 PM

jabberwolf

not sure what you thinking. I do want AMD to exist. Monopoly is not good. You just dont know it. If monopoly can be controlled by being social, then I want to be social.

In intel case, they did actually has rebate policy if manufacture only use intel chip. Now may be its ok when you are small manufacture, but at intel level..reallly bad.

Jabberwolf is a moron

May 13, 2009 10:57 PM

Ensuring the consumer gets a choice of processor instead of being forced to only use one kind is socialist?

CE

May 13, 2009 11:34 PM

http://research.lawyers.com/glossary/bond.html

If I understand that correctly, I think it would make economic sense to place a bond up for grabs. Competition will be rife for that one.

I dont get the whole competition "thang" anyways. Maybe the consumer watchdogs should just change the wording to appropriately suit the marketplace. It appears more regulated as the years roll by. I thought competition by definition holds true to taking that to which can not be shared. Hence, watchdogging encumbers competition thereby naturally exhibiting anti-competitive behaviour. There is a word for that, dictatorship. A watchdog for the watchdog for the world.

At the end of the day, I want faster, cheaper and smaller chips. Why stand in the way of that?

Leonardo Booth

May 13, 2009 11:51 PM

"Anticompetitive or No" - where did this journalist learn English? The last time I checked, "Anticompetitive or Not" would have been proper English, though ending the title with "No" would be perfectly acceptable in Spanish. The next time Cliff Edwards (or his editor) want to write in Spanish, I would suggest doing so for the remainder of the article.

Robert

May 14, 2009 2:20 AM

The EU's action is similar to that of the Pirates off the eastern coast of Somalia. They are simply highjacking corporations rather than ships.

Risto Gusterov

May 14, 2009 4:50 AM

The decision of EU is a big BS.
All this european birocrats are very,very
sensitive on bribes,they are very coruptive people.
Someone has to investigate how AMD succeded to bribe the EU birocrats.

Tom

May 14, 2009 7:15 AM

Jabberwolf, don't be dense. AMD complained to EU about anti-competitive practises of intel. EU investigates, finds Intel paid resellers to delay or cancel products that feature AMD processors, and offered rebates with conditions that the OEM/reseller limit their use of AMD products. Both of which are illegal, Because only intel can provide the required volume of processors to satisfy all of the market, the use of rebates with conditions that resellers/OEMs artifically set the marketshare of AMD products within their product mix results in higher prices for computers. If say company X wanted to buy 1000 processors, with 700 intel at $100 each and 300 AMD at $50 each as determined by comsumer demand, but intel then turn around and offer a rebate that if they only sell 10% AMD then they will sell 900 for the price of 600 (giving a unit price of $66.7 each). Then total price with rebate = 600(buys 900 processors)x$100+100x$50 = $65000. Price without rebate 700x$100 + 300x%50 = $85000. So the rebate makes it cheaper. But even if AMD offer their processors for free, it is cheaper for the reseller to take the rebate and only take 100 AMD processors. Because AMD can't supply 1000 processors, it remains cheaper for the reseller to buy 900 intel and 100 AMD processors. If instead the rebate had been 'buy 900 of our processors and we'll sell them to you for the price of 600', then that would be legal and not anti-competitive as then AMD could lower the price to compete based on the strength of their product. AMD could sell the 300 they could supply for $15000, thus the reseller would have 1200 processors for $80000. Instead with intel's illegal rebates, nothing AMD can do can compete, hence its anti-competitive and illegal.

You can say that now AMD processors aren't competitive performance wise to intel's, but if intel hadn't artificially limited their sales during the early Athlon/64 era when they were caning intel performance and value wise, the extra revenue generated could have been put into R&D making current AMD products more competitive. Thats how intel's illegal actions also stifled innovation which hurts consumers. Its not socialism, its just the law.

Colin

May 14, 2009 12:00 PM

Bruce Potter - "But mock my words..."

HAHAHAHAHAHAHAHAHAHAAAAAHAHHAAHA!!!!

Done.

ABOLISH H-1B/L1 Visas!

May 14, 2009 3:54 PM

The Labor Department said the number of new jobless claims rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week. Before any rebound can happen, first we must Abolish ALL visa's which are being used to replace American Workers with cheap cheap labor labor from the 10th world countries. American worker replacement that has been ongoing for 20 years. Let's have a look at the figures from the State Department website today. Visas that are used to place workers from abroad in professional positions include: H-1B, H-1B1, TN, E-3, L-1, and J-1. Total visas issued in these categories from years 1989 through 2008: 7,053,656. This means that, if the visas were used to push Americans out of the job market in the STEM fields, the way they are commonly being used today, then up to 7 million US workers have already been forced to leave their professions since 1989 and take other jobs.

Hank

May 14, 2009 5:56 PM

How the dollar has fallen...

"a record 1.06 euros (about $1.4 billion U.S.)"

Not Bruce Potter

May 14, 2009 6:40 PM

Bruce Potter,

You seems to hate Michael Dell that much since he showed you the door.

This forum focus on Intel--Anti-competitive or No, NOT place to trash Michael Dell. You go to the wrong place dude!

Not Bruce Potter

gerrrg

May 14, 2009 10:29 PM

And I still can't find a workstation that has an AMD chip.


I think AMD prefers to blame Intel, rather than assume responsibility for execution errors and delays.

Kin

May 17, 2009 4:04 AM

it's amazing how ignorant some of the commenters here.

the wrongdoing happened in 2003-2006, when AMD had a better product than intel (faster, cheaper) but couldnt sell them anywhere. there's even one motherboard manufacturer who shipped AMD-based motherboards in unmarked boxes for fear of reprisal from Intel.

Japan found Intel guilty. South Korea too. Now EU. this is a pattern if I havent seen one.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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