EU: Intel gave improper kickbacks to crush AMD

July 27, 2007, 7:31 AM UTC
Fortune

European regulators said Friday that Intel (INTC) gave computer makers improper payments to use its chips instead of those from rival Advanced Micro Devices (AMD), and that Intel selectively slashed prices to keep AMD from winning big contracts.

Intel defended its pricing actions, saying they have been good for customers and for competition. At times during the period starting in 2003, when the EU accuses Intel of abuse, AMD took market share from Intel. The regulators said their action is not about market share, but about pricing – Intel cut prices so far that competitors would have to sell their product at a loss. “In the short, medium and long-term, we think that the actions of Intel are bad news for competition and consumers,” regulators said.

The European Commission is bringing a formal case against Intel, and Intel will have a chance to defend itself. If Intel’s defense is not successful, it will likely face a fine that could easily run into the hundreds of millions of dollars. Intel has 10 weeks, until the beginning of October, to respond to regulators.

AMD applauded the EU action in a statement from Thomas M. McCoy, AMD executive vice president legal affairs and chief administrative officer: “Consumers know today that their welfare has been sacrificed in the illegal interest of preserving monopoly profits. Intel has circled the globe with a pattern of conduct, including direct payments, in order to enforce full and partial boycotts of AMD. The EU action obviously suggests that Intel has, once again, been unable to justify its illegal conduct.”

Complicating matters in the near term, the battle between Intel and AMD has gotten quite heated. Computer makers are heading into what is expected to be an intensely competitive second half of the year, when most computers are sold. Dell (DELL) has struck deals with Wal-Mart (WMT) stores in the U.S. to sell AMD-based PCs, apparently taking shelf space that rival Hewlett-Packard (HPQ) once occupied; Dell has also stuck a deal with a Japanese electronics retailer to sell computers there. Until this recent push, Dell mostly stuck to a direct-sales strategy.

Meanwhile Apple (AAPL), an Intel-exclusive computer maker, reported this week that it expects its profit margins to dip this fall, partly because of higher component costs and product transitions. Apple also said it will aggressively price its products to gain market share during the back-to-school season, again signaling a competitive PC market.