European Commission Hits Intel with $1.45 Billion Fine

 
 
By Jeffrey Burt  |  Posted 2009-05-13
 
 
 

European Commission Hits Intel with $1.45 Billion Fine


The European Commission levied a record $1.45 billion fine against Intel for what it says were anti-competitive practices against smaller rival Advanced Micro Devices.

The Commission ordered Intel to stop the illegal practices of offering rebates to systems manufacturers for buying only Intel chips, and for making direct payments to OEMs to stop or delay the launch of products powered by x86 processors from chip makers other than Intel.

In a statement, Intel President and CEO Paul Otellini said the company will appeal the Commission's fine.

"We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace-characterized by constant innovation, improved product performance and lower prices," Otellini said in the statement. "There has been absolutely zero harm to consumers."

Intel's Otellini gives an optimistic outlook. Read more here. 

European commissioners disagreed.

"Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years," Competition Commissioner Neelie Kroes said in a statement. "Such a serious and sustained violation of the [European Union's] antitrust rules cannot be tolerated."

According to the Commission, between 2002 and 2007, Intel gave rebates to OEMs on the condition that they buy all or most of their chips from Intel. The Commission said the systems makers impacted by the rebates were Acer, Dell, Hewlett-Packard, Lenovo and NEC.

"Furthermore, Intel made payments to major retailer Media Saturn Holding from October 2002 to December 2007 on condition that it exclusively sold Intel-based PCs in all countries in which Media Saturn Holding is active," the Commission said in a statement announcing the fine.

The commissioners said that in many cases, rebates can help consumers by leading to reduced prices for products. However, they said, a case like Intel's-where it holds an almost 80 percent share of the $30 billion global x86 processor market-can hurt competition. They said that their concerns were not with the rebates, but with the conditions put on them.

To compete with Intel, rival chip makers faced having to offer rebates that in some cases were lower than the cost of producing the CPUs, commissioners said. AMD offered 1 million free chips to one OEM, which would have lost the Intel rebate had it taken all those free AMD chips. Eventually, the systems maker took only 160,000 of the free AMD chips.

The result was less competition in the market and fewer choices for consumers, they said.

Otellini said the Commission's ruling ignored the basics course of competition.

"The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not," Otellini said in his statement. "The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence that contradicts the assertions in this decision. We believe this evidence shows that when companies perform well the market rewards them, when they don't perform the market acts accordingly."

Because Intel invests heavily in innovation, manufacturing and development, it can discount products to compete in a highly competitive market, he said. This helps consumers by passing along the efficiencies Intel has created.

Ruling to Have Far-Reaching Effect in the Market


 

John Spooner, an analyst with Technology Business Research, said the Commission's ruling will have far-reaching effects in the market.

"Although Intel faces a $1.5 billion fine from the European Commission, it's not about the money for the chipmaker," Spooner wrote in a report. "It's about influence. Today's action by the European Commission-and the potential for the U.S. government to take action in the future-will work to limit Intel's vast influence on the PC market. ... There is no doubt that Intel has been and will continue to be heavily involved in influencing the future direction of the PC market. However, the actual results of the EC ruling remain to be seen."

Spooner said he expects that influence will be limited to some extent by the Commission's actions. Intel uses a number of "levers," including rebates-or what Spooner said are called market development funds-pricing discounts and a well-funded marketing arm, to influence PC makers in which systems they bring to the market and how those systems are positioned, he said.

A reduced Intel influence on the PC market could change things, Spooner said. For example, the netbook market would have seen greater experimentation with larger screens without such a strong Intel influence. Indeed, during a meeting with investors and analysts May 12, Otellini spoke of a netbook market that Intel essentially created and dominates.

"Instead, Intel has helped PC makers to develop a new class of thin and light full-size notebooks, based on the forthcoming Intel's Consumer Ultra Low Voltage Core processors (dubbed CULV) to occupy the 12-14-inch screen range," Spooner wrote. "To create these machines, Intel has delivered a lower-cost version of its platform for lightweight notebooks. It did so instead of offering its Atom processor, which it has tied to the smaller-sized screens, for these notebooks."

That said, limiting Intel's practices won't necessarily mean a huge jump in AMD-powered systems, he said. AMD needs to do the work to ensure that its products and prices are competitive with Intel's, something AMD is trying to do with its Puma notebook platform and Yukon chips for lightweight systems.

Making headway in the business space will continue to be a challenge for AMD, but Spooner said that consumers are open to trying AMD-powered systems.


Rocket Fuel