Intel: What's a little antitrust fine when orders are improving?

Intel Corp. (INTC) was fined a record €1.06 billion ($1.44 billion) on Wednesday by the European Union. The EU said the largest chip maker in the world, with 80 percent of the personal computer microprocessor market, used illegal sales tactics to block smaller rival Advanced Micro Devices (AMD) -- its only rival in the personal computer space. The fine represents 4.15 percent of the company's 2008 turnover, and Intel must pay it within three months.

Intel has the dubious glory of beating Microsoft Corp.'s (MSFT) €899 million fine it received as a monopoly abuse penalty. What's more, Intel's fine could have actually been higher if regulators used the full letter of the law.

Intel is said to have influenced computer manufacturers by giving them rebates for buying its chips. These rebates were conditional on buying a large amount of its chips and a smaller amount of its rival's product. Intel also paid the manufacturers to stop or delay the launch of AMD-based computers. As for retailers, Intel paid them to stock only Intel-based computers.

Indeed, some of AMD-based computers were delayed by several months. Despite that, AMD managed to take market share from Intel in 2003. Intel fought back successfully by rolling out Core chips and later Atom chips. So if Intel was able compete on the product level, it's unclear why it felt it had to resort to such practices.

Intel should now be careful continuing these tactics as before the EU, South Korea and Japan already found the company infringed on antitrust laws. And now the U.S. may be stepping up action too.

Intel is irate. CEO and president Paul Otellini issued a statement saying, "Intel takes strong exception to this decision," and plans to appeal. Intel doesn't believe it violated any laws, but rather that it's the result of a market with only two competitors.

Ronald A. Cass , Chairman of the Center for the Rule of Law, also blamed the EU first for fining Intel on the basis of worldwide sales, not just Europe, and for discouraging "aggressive competition that benefits consumers."

AMD, of course, couldn't be happier. "Today's ruling is an important step toward establishing a truly competitive market," said Dirk Meyer, AMD president and CEO.

Oh, but what's a little fine when the Intel's CEO says that chip orders have been "a little better than we expected" so far in the second quarter?

Intel executives noted in an analyst meeting Tuesday that semiconductor sales are slowly improving and that personal computer sales have "bottomed out". Otellini said he's starting to believe the prediction of market research firm Gartner Inc. that personal computer unit sales will decline about 10 percent this year may be too aggressive and that normal seasonal growth is likely to return in the second half of 2009.

Another point of note is that internet traffic has grown, and Otellini argued that's the most telling measure for the sector. Intel also outlined a more diversified business model.

While the fine muted some of the positive sentiment following the analyst meeting, the stock still opened about 1.3 percent above Tuesday's close.


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