Intel boss hits back at EU’s record fine

Intel claims to be “mystified” as to what sales practices the EU Competition Commission expects it to change, after being issued with a record €1.06 billion fine for being anti-competitive.

The five-year case was brought against Intel by its major competitor, AMD, the world’s second-largest manufacturer of microprocessors, which complained that Intel penalises PC manufacturers for using AMD components.

Intel manufactures 80% of the world’s microprocessors while AMD is responsible for the remaining 20%. AMD alleged that computer manufacturers, particularly Acer, Dell, Hewlett-Packard, Lenovo and NEC, faced with a choice between the two companies, were being offered huge rebates in exchange for using Intel’s components. It argued that these rebates in some instances made chip orders free, forcing AMD to sell at a loss in order to remain in business.

Intel CEO Paul Otellini said the company’s competitive strategies were legitimate and that it took “strong exception to [the EU’s] decision” in such a uniquely bipolar market.

“The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not,” he said. “The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence that contradicts the assertions in this decision.

“Intel never sells products below cost. We have, however, consistently invested in innovation, in manufacturing and in developing leadership technology. The result is that we can discount our products to compete in a highly competitive marketplace, passing along to consumers everywhere the efficiencies of being the world’s leading volume manufacturer of microprocessors.”

The decision, he said, “ignores the reality of a highly competitive microprocessor marketplace, characterised by constant innovation, improved product performance and lower prices. There has been absolutely zero harm to consumers.”

While Intel’s fine is considerable, it could prove to be the tip of the iceberg. Having found a sympathetic hearing in Europe, AMD is now likely to press its advantage in the US when it goes to trial in 2010.

That trial looks set to be colourful. According to Associated Press, the lawsuit cites a Toshiba official as saying Intel’s financial incentives amount to "cocaine", and a Gateway executive claiming that Intel’s threats of retaliation after it used AMD chips “beat us into guacamole”.

AMD is meanwhile revelling in its major European victory. CEO Dirk Meyer said the ruling was “an important step toward establishing a truly competitive market”, and that AMD was “looking forward to the move from a world in which Intel ruled, to one which is ruled by customers”.

And the EU ruling may prove too little too late for AMD. Last year it announced plans to split into two separate entities, a manufacturing company and a distribution company, after a long run of disastrous financial quarters.

Gartner analyst Martin Reynolds said fining Intel would have little impact on the market, given that the anti-competitive influences were based on sales relationships rather than contractual agreements. AMD, he also noted, would not be receiving any of the fine as compensation, which would instead be added to the EU’s tax coffers.

“The Intel-AMD market share is likely to remain roughly aligned with manufacturing capacity, adjusted for technology capabilities,” Reynolds said. “Intel will pay its fine and carefully inspect its sales relationships to protect against risky influence. The decision is unlikely to make any significant change in market conditions.”

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