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Tennessee Slim
05-17-2009, 11:05
A Ruling Against Intel, Unlikely to Drag It Down (http://www.nytimes.com/2009/05/14/technology/business-computing/14chip.html?th&emc=th)

By ASHLEE VANCE
Published: May 13, 2009

European regulators have spent close to nine years investigating whether Intel, the world’s largest chip maker, illegally hampered competitors in its dealings with computer makers and retailers. And on Wednesday, they finally reached a conclusion, punishing Intel with a record fine of 1.06 billion euros ($1.45 billion) for abusing its dominant position in the computer chip market.

The European Commission accused Intel of offering computer makers better deals if they would agree to sell products that relied solely on Intel’s processors or delay products that used chips made by Intel’s rival, Advanced Micro Devices. In addition, regulators said Intel paid a retailer to keep only Intel chips in stock.

While the commission does not want to eliminate volume discounts, which are common in the PC industry, it ordered Intel to stop placing onerous conditions on the recipients.

But while A.M.D. cheered the ruling as encouraging challengers to Intel’s dominance, the history of antitrust cases against Intel and other big technology companies suggests that little will change.

As the world’s largest chip maker and the co-creator of the PC industry, Intel brings vast technological and business resources to a game whose rules change at Internet speed. A few minutes in the penalty box, while perhaps costly, will hardly have any impact on Intel’s position.

“There is nothing in this ruling that reverses Moore’s Law,” said Paul S. Otellini, Intel’s chief executive, during a conference call to discuss the ruling in Europe. He was referring to the observation made famous by Intel’s co-founder, Gordon Moore, that the computing muscle of chips tends to double about every two years, even as prices fall.

Intel and A.M.D. have squabbled in courtrooms for decades, arguing over issues like Intel’s control over the underlying architecture of PC chips and the company’s sales tactics. A.M.D. has achieved a number of victories in these cases and is the main alternative to Intel as the supplier of the powerful microprocessors that function as the brains of PCs and computer servers.

However, A.M.D.’s overall position in the chip market has remained relatively constant. Intel tends to claim about 80 percent of total PC and server chip sales, while A.M.D. takes close to 20 percent.

“That really has never shifted much, whether there are antitrust rulings or not,” said Dan Hutcheson, the chief executive of VLSI Research, a chip research firm.

A.M.D. argues that the commission’s decision will have a big impact. “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,” said Thomas M. McCoy, A.M.D.’s executive vice president for legal affairs.

Through complaints in Europe, Asia and the United States, A.M.D. has spent vast amounts of time and money raising concerns about Intel’s interactions with the companies that produce and sell PCs and servers, such as Dell and Acer. A.M.D. has accused Intel of essentially paying companies to not use A.M.D.’s chips in their products and to delay the release of products based on A.M.D.’s chips.

Last year, Korean regulators fined Intel for harming A.M.D.’s business. And now the European Commission has followed suit. The competition commissioner, Neelie Kroes, said Intel had skewed competition and denied consumers a choice for chips, with practices that “undermined innovation.”

Intel plans to appeal the European ruling and has denied including any exclusionary measures in its contracts with customers or retailers.

Many analysts charge that A.M.D.’s intense focus on trying to alter Intel’s interactions with customers will have little impact on its overall business.

“When you get down to it, whatever Intel is doing that A.M.D. is complaining about probably isn’t making that much of a difference,” said Linley Gwennap, a chip analyst at the Linley Group. “The Intel discounts or whatever are just noise.”

A.M.D.’s most impressive and profitable moments have come when it has read the technology tea leaves and developed superior products. At times, A.M.D. has beaten Intel on overall PC chip speeds. In 2003, it introduced a server chip called Opteron that shook up the market and for the first time made the company a serious player in the data centers of large businesses.

In fact, A.M.D.’s successes during the last few years, achieved while European regulators conducted their investigation, have altered the chip landscape. A.M.D.’s chips now appear in both the PCs and the servers of most major manufacturers.

“Europe’s case is really predicated on the idea that there will be future harm to A.M.D.,” said Geoffrey Manne, who has practiced antitrust law and taught at Lewis & Clark Law School in Portland, Ore. “It is really hard to find evidence of that now.”

One of A.M.D.’s major problems has been its inability to produce top-notch products regularly. After a series of ground-breaking chips, it often ends up shipping products late or has to rework them to eliminate troublesome bugs. Intel, meanwhile, uses its vast resources to catch up and then surpass A.M.D.

“A.M.D. is basically operating on a shoestring,” Mr. Gwennap said. “If you have a slip-up, that can kill your revenue for the next couple of years. But Intel has projects and back-up projects and back-ups to the back-ups.”

A.M.D. insists that Intel has just as many problems getting new chips out, but can use its heft to outflank competitors.

“When you are one of the biggest and richest monopolies of the century, it is pretty easy to hide your sins,” said Mr. McCoy of A.M.D. “They shoot us in the knee and then tell everyone, ‘Hey, look, they don’t run fast.’ ”

The industry is paying more attention these days to Intel’s dealings in markets other than PCs. Intel is gunning for Nvidia in the graphics-chip market and for Freescale Semiconductor, Qualcomm and Texas Instruments in cellphone chips.

Ultimately, the European Commission’s ruling appears to address yesterday’s problems.

“There is a recognition in the U.S. that this is a problem, but no court has tried to confront it or change its approach based on this fear that things change too quickly for a remedy to have any impact,” said Keith N. Hylton, a Boston University law professor.