Intel looks beyond EU litigation

Intel gave an annual briefing on its business to scores of analysts at its Silicon Valley headquarters this week, but a record fine from the European Union was never on the agenda.
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Hours before yesterday's decision in Brussels, Paul Otellini, chief executive, told a question-and-answer session that rumours of a fine were just that, and he would not discuss them.

Instead, analysts were shown charts, including one showing Intel's healthy cash balance of $10bn.

"Solid cash, solid returns, enough to pay the dividends and to handle any kinds of issues we may have, even in tough times," Mr Otellini said. The implication seemed to be that a fine of €1.06bn ($1.45bn) would not trouble the world's biggest chipmaker and, whatever Europe decided, it would be business as usual.

But this third regulatory decision against Intel may give it pause for thought. Its practices have been condemned in a judgement of more than 500 pages and with a fine that dwarfs the $25m levied by Korea's Fair Trade Commission last year, as well as the penalty-free wrist slapping meted out by Japan's FTC in 2005, over similar concerns to the EU's.

"I think Intel would be wise to seriously reconsider its conduct before these penalties begin to mount up," said David Balto, former policy director of the US Federal Trade Commission, which, along with certain US states, is investigating similar allegations.

"What this decision does is substantially raise the likelihood that you are going to see the FTC and the state attorneys-general bringing enforcement action challenging these anti-competitive practices."

On a conference call yesterday, Mr Otellini admitted that the investigations and legal action, which also include class action lawsuits consolidated in a civil case brought by its rival AMD in Delaware, had become both costly and time consuming.

"I haven't found a low-priced lawyer yet that's any good . . . and rather than our senior managers spending their time working on new products and out trying to win business, they are spending an awful lot of time in depositions and in courtrooms," he said. "So to me, that's counter-productive to the interests of our shareholders."

But there seems little indication Intel will try quickly to settle its disputes, in a move similar to rival Qualcomm. That chipmaker made peace in its major disputes with Nokia and Broadcom over the past year.

Intel's date in court with AMD is in 2010. Meanwhile, US regulatory inquiries rumble on. Intel has pledged to appeal against the EU decision, despite its grounds for doing so being weak, according to Mr Balto.

"This case is much more straightforward than the [much-appealed] Microsoft case in Europe," Mr Balto said. "It's simply a form of strong-arm tactics to coerce manufacturers and retailers only to use Intel, so I don't think its chances on appeal are very promising."

In Brussels, yesterday commission officials were at pains to stress that their objection was not to rebates offered by Intel - which tend to drive prices down - but to the conditions which Intel attached to them.

In particular, officials claimed that, under Intel's pricing policy, a computer manufacturer which took AMD processors for part of its needs could lose the rebate - or a large part of it - which Intel provided on the rest of its supply.

However, the commission did not pursue one charge which it had outlined in its initial statement of objections - namely, that Intel engaged in below-cost pricing against AMD-based products to strategic customers.

There was widespread debate in Brussels over what immediate impact the commission's measures might have on the market, with many observers cautious about predicting any rapid changes.

Intel itself sees no change. Mr Otellini said it would continue with its normal practice of offering discounts on volume purchases and had not engaged in the alleged rebates with strings attached.

The company still holds about 80 per cent of the market and has taken a decisive lead over AMD in the technology that follows Moore's Law - Gordon Moore, Intel's co-founder, predicted accurately that the number of transistors on chips would double every few years. This means cheaper processors, a big price advantage over AMD, and lower cost or more powerful PCs for consumers.

"There's nothing in this ruling that reverses Moore's Law," said Mr Otellini.

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BY Chris Nuttall in San Francisco and Nikki Tait in,Brussels
Source：Financial Times

Copyright The Financial Times Limited 2009.