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Intel's microchip monopoly under fire from European Union

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30th Jul 2007
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After long pursuit of Microsoft, EU competition regulators have turned their attention to chipmaker Intel's tactics against rival AMD ahead of the next generation of fast processors. FinanceWeek.co.uk editor Alan Shipman reports.

The European Union (EU) has launched an anti-monopoly action against microchip maker Intel, mirroring a probe already under way in the US.

Europe's competition regulators want to know why Intel’s market share has climbed back towards 80% this year, even though its main rival Advanced Micro Devices (AMD) knocked it back to 75% in 2006 on the strength of what many testers viewed as equally good products.

The suspicion in Brussels is that Intel has gone beyond the normal discounts to bulk buyers of its own chips, and paid them extra to delay the introduction of AMD-chipped machines, or cancel them altogether. Following a six-year investigation, the commission issued a statement of objections outlining allegations that Intel has pursued monopolistic policies against AMD. In effect, it has been suggested that Intel was willing to allow the competitor’s market share to rise in order to avoid regulatory suspicion, but was using predatory pricing to cap it below 25%.

Intel senior vice president and general counsel Bruce Sewell commented in an official response to the EU's statement of objection: "While we would certainly have preferred to avoid the cost and inconvenience of establishing that our competitive conduct in Europe has been lawful, the commission's decision to issue a statement of objections means that at last Intel will have the opportunity to hear and respond to the allegations made by our primary competitor.

"The commission has an obligation to investigate those complaints. However, a statement of objections contains only preliminary allegations and does not itself amount to a finding that there has been a violation of European Union law.

"The evidence that this industry is fiercely competitive and working is compelling. When competitors perform and execute the market rewards them. When they falter and under-perform the market responds accordingly."

If the EU convicts Intel, it could force the Californian company to pay fines worth up to 10% of turnover, and take steps to enforce more open access to a chip market worth £33 billion last year.

Competition in the hardware market has forced PC makers to pass on most of the discounts - legal or otherwise - received from Intel, so it is not clear that business users’ prices have been forced up. But the EU is eyeing the market 18-24 months from now, when AMD will launch chips aimed at matching Intel in its biggest-volume markets, and at the more complex parallel-processing sector, where AMD recently acquired graphics specialist ATI for $5.4bn.

AMD's chief financial officer Bob Rivet has assured shareholders that AMD will return to break-even this year, but with the US economy slowing, even company insiders admit this may be out of its reach.

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