For Intel, a fine line between competition and thuggery

The question struck a nerve. Ruiz said he’s confident that courts will find that Intel has been fighting dirty in the semiconductor market, effectively hitting AMD below the belt to keep it from gaining market share. “We deserve a bigger share than we have,” Ruiz said. “This thing ought to result in their behavior stopping. … The moment it does, I believe we’re going to have the opportunity to significantly increase our participation in the market. It’s inevitable.”

Apparently, Ruiz isn’t alone in that opinion. This week South Korean regulators told Intel that their two-year investigation concludes that the chip giant indeed has been sucker-punching AMD. Intel’s tactics have allegedly included paying computer makers to limit their use of AMD chips, and even selling chips at a loss to lock AMD out of major contracts. Regulators in Japan and the European Union have already brought similar accusations against Intel; Intel has said it will fight all of the charges.

ULTIMATE FIGHTING

Intel argues that the chip business is more akin to the no-holds-barred world of Ultimate Fighting than to genteel boxing. “We’re hopeful that we’ll be able to show the commission that the microprocessor market is functioning normally,” Intel spokesman Chuck Mulloy told the Associated Press. “This is an extremely competitive market and our conduct has been pro-competition and beneficial to consumers.”

Will Intel’s argument be successful? That could depend on whether courts view the company as an aging champion or a schoolyard bully.

CHAMP OR BULLY?

To mount its aging champion defense, Intel is likely to cast AMD as a worthy competitor that scored a coup four years ago with the release of its Opteron processors. Opteron, which obviously outperformed Intel’s offerings, sent AMD’s stock on a tear – between early 2003 and early 2006, AMD rocketed from the $5 a share range to a high of $40 a share, piling up profits along the way. The company also took market share from Intel, particularly in desktops and servers – even longtime Intel devotee Dell (DELL) is using more AMD chips.

But AMD will want the courts to focus on the last 18 months, which have been far less kind to AMD. Intel, which commands about 75 percent of the chip market, has slashed prices and improved its product portfolio. Meanwhile, AMD profits have evaporated and its stock has plummeted. Today AMD’s market capitalization is just a third of its early 2006 peak – a problem Ruiz would say is largely a result of Intel’s thuggery.

Is it really Intel’s fault, though? Intel supporters might point to the wars between Coca-Cola (KO) and PepsiCo (PEP), in which the companies routinely pay restaurants to sell their beverages exclusively. Intel’s tactics with PC makers could be seen as similar.

SILICON VALLEY SUPPORT

But Intel’s critics could just as easily point to Microsoft (MSFT), which ran afoul of regulators by tying its Internet Explorer Web browser and other programs into its dominant Windows operating system. In that case, critics successfully argued that Microsoft used Windows to pound its software competitors into the dirt. Even though Microsoft helped to make Web browsers ubiquitous by freely giving consumers software they would have otherwise paid for, courts found that those methods choked off competitors and ultimately limited customer choice.

Still, Intel bashers might have a harder time making their case. Redmond, Wash.-based Microsoft was widely reviled in the online startup community for its cutthroat ways, and its legal woes often seemed to pit it up against all of Silicon Valley. Intel, by contrast, has a less polarizing reputation. Apple (AAPL), a Valley darling, recently embraced the chip giant as the sole supplier of CPUs for its computers; and partners such as Hewlett-Packard (HPQ) and Fujitsu have praised the company’s power-saving mobile processors.

In the end, courts around the globe will decide whether or not Intel has been fighting fair. Though South Korean regulators are the latest to bring charges against Intel, they might move forward quickly; the Yonhap news agency reported that next steps could come as soon as next month. Japan and Europe are also continuing their legal process. And AMD has brought its own suit against Intel in the United States; it’s scheduled to go to court in 2009.