Print 55 comment(s) - last by Dactyl.. on Aug 7 at 2:44 AM

An AMD-commissioned report claims Intel's practices hurt the industry on a massive scale

According to a recent AMD-commissioned study by research firm ERS Group, Intel gained approximately $80 billion USD in monopoly profits over the course of 11 years since 1996. ERS Group director Dr. Michael A. Williams, said that while gaining billions in profits is normal for a company of Intel's size, Intel gained an extra $60 billion by using anticompetitive business practices. Essentially, Dr. Williams' report claims that Intel overcharged for microprocessors and other related products.

Intel has been in a legal situation with the European Union for the last several years, being a prime target for antitrust investigations. Just recently, Intel disputed the EU's claims that its business practices negatively impacted the market and consumer spending. Intel claimed that many if not all complaints were directly from AMD and not customers at all. True enough, most of the complaints filed to the EU have been by AMD and companies that received subpoenas from AMD to release information.

"We are confident that the microprocessor market segment is functioning normally and that Intel's conduct has been lawful, pro-competitive, and beneficial to consumers," said Intel senior vice president and general counsel Bruce Sewell in a statement.

According Dr. Williams' report, Intel collected roughly $141.8 billion USD in profits from 1996 to 2006. The report subtracted normal competitive profits as well as economic profits and something called "assumed advantage profits" of 5%, leaving Intel with $60 billion in monopolistic profits. Despite assumptions using what the report called "standard economic methodologies," it is impossible to determine exactly just how much extra profit Intel gained from a monopoly.

"To be conservative, the study next provided Intel with a generous assumption that 5 percentage points ($28 billion) of its economic return were attributable to legitimate advantages. That left the $60 billion monopoly profit figure," indicated the report.

Assumptions aside, Intel has done very well over the last several years. Its price structure however has not changed drastically -- flagship processors always carry a big premium while lower models always give the better value. Intel's halo processors typically carry a price tag of roughly $1,000 at retail; Intel value processors occasionally fill a sub-$60 price point.

An area outside of the legal system where AMD constantly competes with Intel is in prices. Over the last two years, the price war between AMD and Intel has been nothing less than beneficial to the consumer. AMD recently cut prices on its multi-core processors, giving another shot in the arm to Intel. In this back and forth price cutting, AMD essentially reduces its potential profits. Intel traditionally competes by using heavy marketing campaigns that run on a global scale, but AMD's marketing strategy heavily focuses on the U.S. market -- a small percentage of the overall global market.

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RE: Is it just me...
By Dactyl on 8/6/2007 12:24:24 AM , Rating: 3
AMD is suing because of monopolist tactics in OEM channels, not retail channels.

OEMs were encouraged to buy 90-100% Intel chips, so they didn't have any capacity left over to buy AMD chips.

Intel did this by offering them special prices. Let's say Intel was going to sell CPUs to Dell, and Dell expected to fill 1 million orders in the next time period.

Intel would offer Dell: The first 500,000 CPUs you buy are $200 each. The second 500,000 CPUs you buy are $100 each.

Dell would then logically choose to buy 1 million Intel CPUs, for an average price of $150 each, because they could make a lot more money that way than if they went 50/50 Intel/AMD.

Because of those kinds of deals, Dell was 100% Intel for a very long time, and other OEMs were 90%+ Intel.

I'm not a lawyer, so I can't tell you if that's a monopolistic pricing scheme. I can't tell you if Intel will be found guilty and have to fork over billions of dollars. But that's what the case is about, it's not about the retail channel.

RE: Is it just me...
By sc3252 on 8/6/2007 1:01:30 AM , Rating: 2
Don't try and mix in facts or you might confuse him. He is obviously one sided, and thinks just because for a small period of time that Intel got out sold in a small sector of the market that it proves Intel didn't commit any anti competitive actions through out the whole history of Amd and Intel.

RE: Is it just me...
By James Holden on 8/6/2007 1:14:09 AM , Rating: 2
I'll preface this by stating you have the pricing structure incorrect. It was more like:

Intel would offer Dell: The first 500,000 CPUs you buy are $200 each. The second 500,000 CPUs you buy are $200 each, plus $50 worth of free cobrand advertising dollars

Intel was crafty enough to include "something" that could be monetized for the same price.

In any case, "discounts," as it were, are not monopolistic. Predatory pricing is. What you describe is clearly not predatory pricing.

RE: Is it just me...
By Ringold on 8/6/2007 2:53:40 AM , Rating: 2
A quantity discount, as he described it, is a monopolist tactic; perfectly competitive firms never price discriminate, as their products are homogenous commodities and face a single market-determined price.

Not that it's a bad thing -- there is no perfectly competitive market, and all firms are either bordering on failure or act as monopolists. Just saying; it's a monopolist profit maximizing tool. A competitive farmer in a competitive grain market would never offer or accept a quantity discount.

It's also not necessarily predatory pricing. But then the question becomes at what point is a firm being competitive and the next, with that extra penny off, they become "evil" and "predatory" -- too capitalist for their own good. The real debate is what do "evil" monopolists do and to what degree do they do it that all the other "good" monopolists don't do, and how bad does the "evil" monopolists have to be before getting punishment, and if they are that evil, do we punish them even if it hurts the consumer and the economy.

RE: Is it just me...
By rcc on 8/6/2007 5:24:45 PM , Rating: 1
A quantity discount, as he described it, is a monopolist tactic; perfectly competitive firms never price discriminate,

Maybe I'm misunderstanding you. Graduated pricing schemes based on quantity are common practice worldwide. Unless, of course, you price at or below cost for the sole purpose of driving someone out of business, which clearly wasn't an issue here

RE: Is it just me...
By Dactyl on 8/7/2007 2:44:33 AM , Rating: 2
It's been a while since I read the Complaint; my memory was hazy. Actually, it's worse than either one of us described. Intel was giving a retroactive discount so the OEMs would have to buy 90% Intel to get any discount at all.

The result was that AMD had to sell their processors at a much lower price to get any business at all.

It's described on pages 22-26

RE: Is it just me...
By crystal clear on 8/6/2007 5:33:18 AM , Rating: 2
The class action that was filed back in January that claimed that Intel paid Dell over a billion dollars a year in kickbacks not to buy chips from AMD?

Well, you should because AMD has been beating that particular drum this week as evidence that the European Commission is on the right track in charging Intel with antitrust.

The only problem is that suit was withdrawn back in May, a fact AMD neglected to mention.

Seems the court refused to let Bill Lerach, the guy who filed it, be the lead lawyer for all the class actions filed against Dell after it was discovered that the SEC was investigating Dell.

Lerach of course was a partner in the old Milberg Weiss Lerach mob that took American companies for billions in dubious class actions over the years and is now under indictment itself for paying plaintiffs kickbacks.

RE: Is it just me...
By masher2 on 8/6/2007 9:30:19 AM , Rating: 2
> "OEMs were encouraged to buy 90-100% Intel chips"

Of course. A company's primary function is to encourage others to buy its products in favor of its competitors. When does such behaviour constitute an abuse of monopoly power? By standard antitrust law, you judge by the effects on the marketplace. Not the effect on individual competitors...but the end result to the consumer.

In the period in question, competition flourished. Prices dropped dramatically, new products were introduced at a dizzying pace, and consumers were treated to more choice in the marketplace than ever before. The CPU market was, in fact, one of the healthiest, most vibrant examples of competition to ever exist. The consumer benefitted, and by this touchstone, there was no abuse of monopoly power.

> "Because of those kinds of deals, Dell was 100% Intel for a very long time"

But dozens of other OEMS were *not* 100% Intel, and AMD was in fact gaining market share quickly. Consumers always had a choice as to which product to buy, and competition was not only preserved, it flourished.

> "Intel would offer Dell: The first 500,000 CPUs you buy are $200 each. The second 500,000 CPUs you buy are $100 each"

As others have pointed out, this isn't true. Intel allowed certain OEMs cobranding dollars to be used to advertise the OEMs products, on the assumption that, if the company was selling only Intel chips, advertising its products was essentially advertising Intel's.

As long as competition is preserved, such vertical-market arrangements benefit consumers.

"Game reviewers fought each other to write the most glowing coverage possible for the powerhouse Sony, MS systems. Reviewers flipped coins to see who would review the Nintendo Wii. The losers got stuck with the job." -- Andy Marken

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