Intel Cooperating with FTC Probe

After years of informal probes of the chip giant, the FTC launched an official investigation of Intel's business practices.

The U.S. Federal Trade Commission has now opened a formal investigation into Intel's business practices in the x86 microprocessors market and the chip giant is promising to cooperate with the probe as it goes forward.

In a statement issued June 6, Intel confirmed that it had received a subpoena two days before from FTC that requests information as part of a formal investigation. Intel confirmed the subpoena after The New York Times reported on the investigation Friday.

Intel has been working with the FTC since 2006 as the commission began exploring whether it had abused its dominant position in the x86 processors market. For years, Advanced Micro Devices has complained that Intel uses a variety of underhanded methods to dominate the market and stifle competition.

On Friday, a spokesman for AMD confirmed that the company had also received a subpoena as part of the FTC investigation.

Intel has countered that the market is fair and cited a statistic that processor prices have fallen 42 percent between 2000 and 2007, which the company believes proves that the x86 market is competitive and that Intel works within the law.

"The company believes its business practices are well within U.S. law," according to the Intel statement. "The evidence that this industry is fiercely competitive and working is compelling."

Since the start of 2008, the pressure has been building on Intel as its business practices have come under increasing scrutiny by trade authorities in the United States and overseas. On June 5, Intel was slapped with a $25 million fine by South Korea's Fair Trade Commission for violation of antitrust laws there.

In Japan, Intel did not admit any wrongdoing but agreed to change its practices. Not long after, Toshiba, which had been an exclusive user of Intel chip, introduced the first of its Satellite notebooks with AMD processors.

Intel is also facing a probe by regulators in the European Union and the New York Attorney General's Office has also opened an investigation and has issued subpoenas to both Intel and AMD.

"Intel must now answer to the Federal Trade Commission, which is the appropriate way to determine the impact of Intel practices on U.S. consumers and technology businesses," Troy McCoy, AMD's executive vice president and chief administrative officer, said in a statement. "In every country around the world where Intel's business practices have been investigated, including the decision by South Korea this week, antitrust regulators have taken action."

AMD and Intel are also involved in a four-year-old antitrust lawsuit in U.S. District Court in Delaware. That trial date in the case has been pushed back to February 2010. AMD has repeatedly claimed that Intel cuts its prices, gives away products or tries to intimidate PC vendors from buying other x86 processors, which ensures its market share and dominant position.

AMD and Intel are each fighting over a global semiconductor market that was worth about $273 billion in 2007, according to Gartner. Intel is not only the world's largest producer of semiconductors, it also controls about three quarters of the x86 microprocessor market - the dominant chip used in PCs and servers.

John Spooner, an analyst with Technology Business Research, said that these types of investigations tend to drag on for a year or more, which means that the probe will not have much of an effect on Intel, AMD and the broader IT market in the short term.

In the long run, it could change the way Intel does business, such as the way it handles its rebates with OEMs. The investigation could also give credence to the arguments that AMD has been making for years.

"AMD is going to declare this a victory regardless of what happens," said Spooner. "AMD is going to say, -We were right,' but Intel is going to say -No, you're not.' Right now, Intel doesn't have much choice but to cooperate."

This is not the first time the FTC has investigated Intel for unfair practices. In March 1999, the company settled a complaint with the agency after it was accused of unfair practices, refusing to provide products because of ongoing intellectual property disputes and stifling competition.

In the Times article, the paper cited sources that said the new investigation was approved by William Kovacic, who was recently appointed chairman of the FTC. The commission had no formal comment on the case Friday.