Intel Rebates Equal Payoffs
The allegations from Cuomo's office, which follow a 22-month investigation, in many ways repeat what the EC found. His office said that rebates were nothing more than payoffs that had no legitimate business purpose. It also accused the chip maker of covering up its anti-competitive behavior. The AG's office noted that the money Intel paid out to OEMs was so much that at times it could make the difference between a profit and loss for a vendor or a vendor's business unit, and at times eclipsed the company's quarterly net income.Citing internal documents and e-mails from Intel and OEMs, Cuomo's office says that in 2006, Intel paid Dell almost $2 billion in rebates. Intel also paid HP hundreds of millions of dollars in rebates to cap sales of AMD-based PCs to 5 percent of its overall commercial desktop business, and paid IBM $130 million not to launch an AMD-based server. From 2001 to 2006, Intel also gave Dell a privileged status in comparison with other PC makers for not marketing AMD-based products and threatened to pull out of joint projects with IBM and HP if they marketed AMD-based systems. Among the documents cited by Cuomo's office was a November 2005 e-mail conversation between Dell CEO Michael Dell and Otellini, in which Dell said: "We have lost the performance leadership and it's seriously impacting our business in several areas." Otellini replied: "There is nothing new here. Our product roadmap is what it is. It is improving rapidly daily. It will deliver increasingly leadership products. ... Additionally, we are transferring over $1B [billion] per year to Dell for meet comp efforts. This was judged by your team to be more than sufficient to compensate for the competitive issues." Officials with the CCIA (Computer and Communications Industry Association), which has been vocal against Intel and other technology vendors they believe conduct unfair business practices, said the N.Y. lawsuit underscores the chip company's anti-competitive behavior. "Intel certainly had other clues, more recently including the findings against them by antitrust officials in Japan, Korea and the EU," CCIA President and CEO Ed Black said in a statement. "We hope this action by U.S. authorities convinces Intel to change its business strategy-not just its PR strategy." Black said Intel's legal strategy of denial appears to be failing, and he urged officials with the chip maker to admit their misconduct and change their business practices. The N.Y. suit is the latest example of regulators here and abroad taking a deep interest in antitrust issues in the tech industry. An investigation by the EC is delaying the completion of Oracle's $7.4 billion acquisition of Sun Microsystems, with investigators concerned over Oracle's possible ownership of MySQL. In addition, U.S. investigators reportedly are taking a look at IBM's dominance in the mainframe space. Clay Ryder, an analyst with the Sageza Group, said regulatory attention is nothing new to Intel. "Intel's been under scrutiny so many times in the past by so many regulatory agencies, and so far has pretty much emerged unscathed," Ryder said. "Maybe a slap on the wrist or two by a parochial nun, but nothing too severe." Whether that happens again remains to be seen, he said. The biggest risk to Intel is that having to change its practices of tightly controlling how much product it sells to whom could impact the bottom line. "If you can't cherry-pick how [the product] is sold, it's going to hurt revenues," Ryder said. In addition, Intel and other top-tier vendors may just have to get used to closer scrutiny from regulators, although while there may be questions around the chip maker's practices, no one really wants Intel to go away, he said. "They want [Intel] to play better at the playground, but they don't want to steal their lunch money," Ryder said.
AMD officials applauded Cuomo's actions. In a statement, Tom McCoy, executive vice president of legal, corporate and public affairs, said the lawsuit "details explicit evidence of Intel's harm to U.S. consumers and computer manufacturers. Stopping that illegal harm will serve the settled purpose of the American antitrust laws: ensuring that innovation is unconstrained and competition is free to serve consumers."