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Fine is the largest ever levied for antitrust violations in the EU

Intel is the largest CPU maker in the world and dominates the market in many categories. Allegations were made against Intel in Europe that the company was using its dominant market position to reduce competition and prevent AMD from gaining market share.

DailyTech
has been following the EU investigation into Intel closely. This week allegations against Intel were outlined that claimed the chipmaker offered computer makers discounts and incentives to not use AMD products and to cancel AMD products in development.

The New York Times reports that The European Commission has now ruled against Intel and fined the massive chipmaker $1.45 billion. The fine is the largest ever levied against a company by the Commission and eclipses the fine that Microsoft paid to the EU for anticompetitive practices by about two times.

The EU competition commissioner Neelie Kroes says that the massive fine was justified because Intel has denied consumers a choice for CPUs in products. Kroes told the NYT, "[Intel used] used illegal anticompetitive practices to exclude its only competitor and reduce consumers’ choice — and the whole story is about consumers."

Intel CEO Paul Otellini said the firm would appeal the decision. Otellini said, "We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace. There has been absolutely zero harm to consumers."

AMD's Giuliano Meroni, president of European operations said, "[The decision would] shift the power from an abusive monopolist to computer makers, retailers and above all PC consumers."

Kroes also says that Intel went to great lengths to cover up its anticompetitive actions. Part of the ruling against Intel also forces the company to immediately stop offering computer makers rebates that are part of the reason Intel maintains an 80% market share in Europe.

Intel must change these practices immediately pending appeal though it can ask for an injunction. The $1.45 billion fine has to be paid immediately, but will be placed into an account and held until all of Intel's appeals are exhausted. The appeals process could reportedly last for years.

The amount of the fine levied against Intel is certainly massive, but the NYT says it could have been even larger. The European Commission can levy fines as high as 10% of the company's total revenue. With sales of $37.6 billion in 2008, the fine could have reached nearly $4 billion.

Fines collected by the commission are added to its budget, which is around €130 billion reports the NYT. Kroes said, "Now they [Intel] are the sponsors of the European taxpayers."

The huge fine will also serve as a warning to other companies facing investigation by the commission. Regulators in the EU are some of the strictest enforcers of antitrust law in the world. The NYT reports that the EU is so much tougher on antitrust that U.S. firms often file allegations in Europe rather than in America. Intel is also facing inquiries in the U.S. from the FCC over similar allegations.



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RE: I would laugh...
By finalfan on 5/13/2009 2:18:31 PM , Rating: 2
You just stated half of the truth.

Yes, AMD was having a better product. However, they didn't have the capacity to produce enough CPU to meet the requirement of the market. Gateway had always been a good buyer of AMD CPU, but it had to quit buying AMD twice just because AMD failed to deliver the orders in the holiday seasons. Dell alone grabbed a big portion of AMD CPUs when it started to sell AMD systems. Smaller OEMs have no choice but to buy Intels which are always available. AMD virtually had no inventory in its good days. How come it can complain Intel's business strategy is harming its sells? What AMD really want is a higher ASP which it cannot get when Intel is giving out rebates, as it clearly speaked out in its complain. if AMD was able to produce a similar CPU at the same cost and fill the orders in time, I don't see why AMD can't give the same rebate to OEMs. Unless their cost is too high which is the ultimate reason they cannot compete.


RE: I would laugh...
By mars777 on 5/13/2009 4:09:44 PM , Rating: 2
It is not about cost.

Just try this equation:

You have 20% free production capacity.

You have 80% of products in some dominant OEM.
Can you give discount of 20% and gain the other 20% of products in that OEM?
Yes because you cover up the 20% loss with 20% more market share. The worst that happens is you fulfill your capacity.

You have 20% of products in the same dominant OEM.
Can you give 20% discount and gain 80% more products in that OEM?
You would be glad to do it since profits would go UP hugely.
But NO you cant: it equals to 100% up to 400% more capacity (depending on how dominant the OEM is) and you have just 20% :((


RE: I would laugh...
By mars777 on 5/13/2009 4:37:03 PM , Rating: 2
Forgot to mention that:

Production capacity investments are never higher and never increase more than net profit increase estimation for the next fiscal period (if profit returns for the new capacity are estimated in that period).
Commonly asset costs are high and production capacity does not increase brutally, it almost never increases more than a few percents for advanced tech businesses like chip manufacturers. It is direct R&D cost coupled with operating cost and almost never done in a short period because it's advanced technologies.
If it does you loose money even though you aim to sell more.
You can do this only if you have a lot of capital and are willing to post an ugly fiscal report in hope of fulfilling those new capacities, and that is never guaranteed (recession, product failure...), eg. you can do this only if you arefull of money and can stand share price drops.

And that surely isn't AMD :D


RE: I would laugh...
By finalfan on 5/13/2009 6:24:27 PM , Rating: 2
Intel's huge investment into production enable its 1 year lead in die shrink which gives Intel the advantages of much lower cost and higher capacity.

By the way, I didn't see Intel had "ugly fiscal report" but AMD did.


RE: I would laugh...
By finalfan on 5/13/2009 6:15:36 PM , Rating: 2
It is about cost. If your cost is low enough, you can afford to lower your price to get more market share. For any smaller player, it's a joke to catch 100% share. Nobody plans running on 80% in this industry. If it does, there is trouble. You equation doesn't make sense.


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