Report: Intel Reaped $60 Billion in Monopoly Profits
August 5, 2007 3:18 PM
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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.
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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This looks more like marketing than litigation
8/6/2007 1:58:34 PM
So a report is commissioned by the plaintiff to investigate the potential economic consequences of the defendant's actions. It's wise to view it with a grain of salt for conflict of interest and bias. It is also wise to not simply dismiss it completely for lack of merit simply because of the funding source. I don't know why anyone is seriously arguing or debating about Intel's marketing practices or it's actions. No one here is really privvy to the details of all the transactions. Think for a moment. If Intel's actions are clearly out of line and it is so clear that they were systematically doing things to stifle competition, don't you think that the EU commission in the past investigation, the investigations in the United States, and whatever else investigations would have acted already? It is probably because the actions are dancing around the edges of what is allowed and what is not allowed and that it isn't clear cut that this has dragged on for so long over so many inquiries. To some extent, the outcomes of these investigations are probably writing new case laws to clarify what constitute monopolistic practices for furture lawyers. So don't think that anyone out in the public, without access to the confidential information that these investogators did, can assert that he or she knows so clearly that Intel's actions were legal or illegal.
What you have to wonder is why AMD is fighting this in the court of public opinion? AMD knows that taking out a full page ad in the WSJ or throwing this sound bite "$60 billion dollars" out to the public will not really affect investigators. They will, however, build a perception of the "evil-doer" public opinion. These aren't steps to influence the official investigation. These are steps to turn their ligitation efforts into a marketing campaign. By labeling Intel as the "monopoly" and quantifying the impact to the public without due process, they've already tried and convicted their competition in the eyes of the public. They don't have to go through due process in order to carry out a marketing campaign. When going to Circuit City to buy their next PC, mom and pop may recall in their mind hearing someone speak of or reading about Intel being a monopoly. Doesn't matter that they don't know the details or whether Intel was found guilty or not guilty in past investigations. Instead of stupidly buying Intel because of the "Intel-inside" marketing campaign, they may now buy AMD because of the appeal to their all-American anti-monopoly sentiment. Voila! AMD has accomplish what they set out to achieve! Affect public opinion enough to influence purchasing decisions. Doesn't matter whether Intel is convicted at the end. If it is, it's icing on the cake.
So the question for all those making purchasing decisions with news of the lawsuit in mind, whether it is to sow seeds of doubt about Intel's future and the longevity of the product line or to appeal to your sense of anti-monopoly as the American consumer, ask yourself whether you are the target of a marketing campaign and whether you are keeping a clear head separating the legal investigation from the marketing. Do you really think you know enough about the details of this investigation and about monopoly law to be so sure that Intel is a monopoly or has acted against the law? Are you or someone you know being influenced in their purchasing decision by the constant barrage of news about Intel's monopolistic practices and how it has caused harm?
Food for thought.
"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch
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