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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 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.

"If you look at the last five years, if you look at what major innovations have occurred in computing technology, every single one of them came from AMD. Not a single innovation came from Intel." -- AMD CEO Hector Ruiz in 2007

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