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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RE: Is it just me...
8/6/2007 5:04:44 PM
Really big companies also tend to be quite conservative in buying habits. And IT managers likewise. For instance...
An IT manager has to purchase 1000 computers, probably from Dell or HP. If processor even comes up, regardless of his personal preference, he/she will most likely go with Intel. Why? Because they are the major player in the market. And it's an unfortunate fact in the business world that if there is a problem with these computers it goes like this.
If they are Intel, upper management will say "it's an Intel problem, no way to predict it, get IT on the fixes".
If it's an AMD/other processor, they'll say "AMD? Who authorized this second rate stuff, I want some heads". And the IT manager will be pounding the pavement.
Bottom line, in big business, taking risks will get you a big gain, or loss. On procurements, anything but the mainstream largest supplier is a risk, calcuated or otherwise. Most people are very careful about risking their jobs. Unless they are too young to care or know, or rich enough that it doesn't matter.
"I'd be pissed too, but you didn't have to go all Minority Report on his ass!" -- Jon Stewart on police raiding Gizmodo editor Jason Chen's home
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