EC says Intel influenced bids for computer projects

August 3, 2007, 3:42 PM UTC
Fortune

Last Thursday, when the European Commission preliminarily accused Intel (INTC) of having engaged in three categories of wrongdoing in violation of European competition law, the first two categories were old-hat, but the third was new.

The first two types of allegation were that (1) Intel used “loyalty rebates” to force computer makers to limit their use of Advanced Micro Devices (AMD) chips (see earlier post explaining those, here) and (2) that it dissuaded computer makers from promoting AMD’s product launches either through payments or threats. These allegations were familiar, as both had been leveled by AMD in its June 2005 federal antitrust suit against Intel in Delaware and the rebate allegation had also been made by the Japanese Fair Trade Commission in its March 2005 finding that Intel violated Japanese competition law.

The third type of allegation, however, was new, and sounded like a variety of predatory pricing. “In the context of bids against AMD-based products for strategic customers in the server segment of the market,” the commission press release said, “Intel has offered CPUs on average below cost.” (The document itself, known as a statement of objections, remains confidential, and has only been seen by Intel; but the EC released a press release Friday, available here, briefly summarizing its contents.)

In an interview yesterday, AMD executive vice president for legal affairs Tom McCoy told me that the third claim relates to Intel’s use of so-called “bid buckets” to enable a favored computer maker, who uses Intel chips, to win contracts for very large, prestigious, server computing projects. Basically, he claims, Intel would give a bucketful of money to one bidder so that it could easily underbid all rival bid participants, thereby ensuring that the showcase project would ultimately choose Intel-powered machines. AMD claims that Intel did this to mislead consumers. “You have a demanding, rigorous, end-user making a decision about technology,” McCoy says, “so the world wants to know what they choose. It says something about the technology.” McCoy claims that the practice, used between 2003 and 2006 when AMD’s Opteron server chip is widely acknowledged to have had a technological advantage over Intel’s offerings, infuriated all the bidders other than the annointed favorite. “It rigs the bid for everybody participating, even those using Intel technology.”

Intel spokesman Chuck Mulloy confirms that the EC’s third category of charge was something new, but he “won’t comment one way or another” on AMD’s characterization or any other specifics, saying the “statement of objections is a confidential document. I’m not going to violate those rules, which it sounds like AMD did.”

Of the general allegation that the EC did make public — that “Intel has offered CPUs on average below cost” — Mulloy said, “We think they’ve made some mistakes on their assumptions about our cost structure. They don’t have our data, view, or statement on that [yet] because we did not know that’s where they were going.” (Intel has until October 8, 2007, to supply a written response to the EC trying to allay its concerns.)

Asked for an example of a specific such project where a “bid bucket” might have been used, AMD’s McCoy refers to a previously reported 2005 incident, recounted in the British trade weekly MicroScope here, in which a CompuSys official complained to the EC about a bid Dell (DELL) made for a high-performance computing contract offered by the Manchester University Computer Centre. The university had £650,000 to spend and hoped to buy a minimum of 550 servers; Dell won the deal by offering to provide up to 1,000 units. Dell and the EC both declined to comment to MicroScope at the time.