The United States Federal Trade Commission recently began a formal antitrust investigation into Intel’s business practices. This action is not simply a problem for Intel, but should serve as a wake-up call for the entire technology industry and anyone who values innovation.
Some of the drivers behind the Intel inquiry are complaints by its competitor, Advanced Micro Devices. Both AMD and Intel compete to provide microprocessors for computers, with Intel holding a larger portion of the market. For more than 15 years, AMD has complained about Intel, arguing that the company cuts prices and offers discounts in attempts to monopolize the market. The United States government has rejected such claims in the past, but now that there is a new FTC chief, the investigation is moving forward.
The idea that lowering prices for consumers is anticompetitive is so off-base that it would be laughable if it weren’t being wielded by politically motivated individuals such as New York Attorney General Andrew Cuomo. He launched formal proceedings in January, accusing Intel of “potential anticompetitive conduct.” Cuomo’s investigation just happens to coincide with AMD’s plans to locate a new US$3.2-billion factory outside of Albany, capital of New York state. The attorney general of California — where both Intel and AMD are located — rejected an invitation to join the action.
Strong Competition
If there were no competition in the market, an antitrust inquiry might be less objectionable. However, greater access to computing power is getting continually cheaper precisely because competition remains strong.
“There is absolutely competition in the marketplace,” says Dean McCarron of Mercury Research, a research firm focusing on PC-related semiconductor and components markets.
Because of Moore’s Law, McCarron says that products in this space change every year and a half or so. “That’s the treadmill everyone is on. If [the companies] don’t constantly improve their manufacturing processes, they will be at a competitive disadvantage.” Intel might be a big firm, but if it makes any mistakes, competitors can gobble up its market share.
As it turns out, last year AMD made a rather big mistake on their quad-core chips that impacted their position in the server market. “We blew it and we are very humbled by it,” CEO Hector Ruiz told Wall Street analysts last December. AMD’s share of the server market is now about half of what it was at its peak, but it is still doing reasonably well in the desktop and mobile markets, according to McCarron.
Buying Time?
Given that competition is so intense in the microprocessor market and in the technology sector in general, it’s not hard to see why competitors would attempt to deploy government bureaucrats as an additional weapon in their competitive arsenal. Filing antitrust complaints against competitors forces them to divert attention and resources away from research and development and into wasteful litigation. Indeed, Intel recently indicated that it is planning to increase the size of its lobbying operations in Washington.
From a short-term business perspective, antitrust complaints against one’s competitor might make sense if it buys some critical time for the company to play catch-up in the marketplace. From a public policy perspective, however, antitrust actions intended to slow down legitimate competition are extremely harmful and should be avoided. That’s because such actions divert resources away from healthy market activities such as boosting efficiency and conducting the research that keeps American companies in the top spot.
Foreign governments are quite aware of how such litigation can be used to slow down competition from America, which helps to explain why the European Union, Korea, Japan and, most recently, China, are getting into the antitrust game. When it comes to Intel, the EU began an investigation in January and the Korea Fair Trade Commission announced last week that it is fining Intel 26 billion won (US$25.2 million). However, Intel is not the only company at risk. Any company that comes out on top in the technology industry is fair game.
Wasteful Behavior
After years of struggling to fight antitrust claims, Microsoft is still spending significant resources battling antitrust claims in Europe; Apple is under investigation in various European countries; and Qualcomm is already subject to an official EU competition commission investigation. What American regulators can do to fight these rent-seeking activities from abroad is to start by dismissing such claims at home.
Antitrust legislation was supposed to inject fairness into the marketplace, but in reality it is usually used as a competitive weapon that rewards wasteful behavior. Intel is not the only company at risk. This is a problem the entire tech sector must address.
Sonia Arrison, a TechNewsWorld columnist, is senior fellow in technology studies at the California-based Pacific Research Institute.
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Have you ever tried to walk past motion sensor without the light or siren coming on? it is a fun game but for successful monopolists ,they do similiar thing by moving so slowly that regulators are not ticked off enough to react… Small competitiors are too small to be noticed by motion sensors let alone ticked off shareholders… Consumers are motion sensors….
Intel once talked about building blocks for all of computing devices be it servers , routers, switches, whatever. I thought that Intel would displace Cisco long ago. I was wrong… Intel is not a good competitior but a good cheater… Intel is now into WiMax and it appears that Intel is not capable of good teamwork as it appears to insisit that it get the lion share of the new technology should it take off successfully. AMD is a wake up call for the entire technology industry, is nt it?
I would be damned only if AMD competes just enough to keep its employees paid and leaving shareholders holding the shaft…. True, AMD had robbed Intel of untold billions in lost profits, but hey, Intel got to cut prices . That deep repeatedly, I dont think so… If you ask me how consumers are harmed if any. Well, I can probably answer that AMD would probably not screwed up with its recent Opteron quad cores had it AM ple of money in its wallet not to mention a nice captial gain for its shareholders… Your thinking goes as following…. take care of consumers and screw the shareholders… Since when is shareholders never as consumers?? Shareholders are consumers too… Dont try to make me crazy with another senseless question of yours!!
Sonia
I had been following AMD for decades with deep interest. You might just for a "meet the deadline" data thumbing over a short span of hours and thinking that you are an expert and dont require much time to provide reliable information to readers…. This is very typical of columnists. I learn more from regular Joe Six Packs than I do from $450,000 a year experts like yourself… Still stonewalling? Look at AMD now at $7 a share and I dare you to buy one share of AMD… You would squeal like a squirrel! The last thing I need is someone pushing AMD back while I hold AMD shares… I simply blow anyone away with my deep knowledge…
The investigation isn’t centering around now or even the last 24 months. The main timeframe is approx 1999 – 2003. During this time, AMD was practically nonexistant except in the DIY / Whitebox community. Demand was strong, but none of the Original Equipment Manufacturers (OEMs) would build anything with AMD inside. It didn’t make any sense. AMD processors were at times, faster than Intel (K7 reached 1 ghz before the PIII did) and cost less. Who wouldn’t want to be able to sell a faster computer for better profits? Well, the reason is that Intel was funneling money back to the manufacturers under the table as an incentive to not use AMD AT ALL. When you have the market advantage that Intel has, that is illegal. AMD even tried to GIVE AWAY their chips once just to get HP to start making servers with their chips!! Hp was going to take the deal and then suddenly, it was a no go. They had even readied all of the promotional marketing material! Word was that Intel execs came to HP and told them point blank that if they used AMD, they would no longer be supplied with the Intel chips they needed for their customers that wanted them.
These are the tactics that AMD is contesting.
AMD has a very good case against Intel, which is why most countries that have made a decision thus far have chosen to fine Intel. The main objection is that Intel gave its customers discounts if they agreed limit their purchases from AMD. AMD also claims (and Intel denies) that because of the discounts Intel ended up selling some of its processors at below-cost in order to gain market share.
How is that not anti-competitive? Do you think Intel will continue to offer these discounts if AMD goes out of business? If there is no other company to limit purchases from, there’s no reason to offer the discounts. They’ll take advantage of their position as a monopoly on x86 processors to jack up prices for the consumer. We need to stop this behavior before that happens.
Please read the AMD complaint before you make such off the mark comments. AMD claims evidence that Intel abused its market dominance to shut out AMD, not based on technology prowess, but by tying financial incentives for VARs to their not using AMD, and punishing VARs who did use AMD. This is not fair competition, this is gross abuse by a monopolist!