EU Expected to Fine Processor Maker Intel in AMD Antitrust Complaint

By Jessica Davis  |  Print this article Print

Back-end rebates and incentive programs are as much a part of doing business in the reseller and system builder channel as coupons are in the grocery store business. But this week the European Union is expected to rule against Intel, levying a fine against the processor giant and ordering it to discontinue certain rebate practices. The ruling comes out of a 2001 complaint filed by processor rival AMD.

Back-end rebates and incentive programs are as much a part of doing business in the reseller and system builders channel as coupons are to the grocery store business.

Breaking news: Intel vows to appeal $1.5B fine, EC antitrust ruling

But this week industry giant Intel (NASDAQ:INTC) is expected to be found to have violated European antitrust regulations, abusing its market dominance by using rebates to influence PC makers’ processor purchasing decisions—essentially as weapons against smaller rival Advanced Micro Devices (NYSE:AMD).

Several news reports say that the European Commission will rule this week against Intel in the 2001 complaint filed by AMD. A Reuters report  cites sources close to the matter as saying that Intel will face a large fine and will be ordered to change its rebate practices. Details on the amount of the fine and the rebate changes that will be ordered were not provided. Microsoft was the recipient of the largest fine ever levied by the EC for an abuse of market dominance—497 million euros ($655 million) in 2004.

According to Reuters, the sources say that the first of two violations relate to Intel giving rebates to computer makers to restrict or eliminate the use of AMD processors, and providing other incentives to retailers to sell only Intel-based PCs.

The second violation states that Intel paid PC makers to delay or scrap the launch of PCs containing processors made by competitors. The sources said that violations go back eight years, according to the report. Intel and the European Commission have repeatedly refused to comment on the matter to any news organization.

Intel dominates the computer processor market with 80.5 percent market share, compared with AMD’s 12 percent. The market share numbers, provided by research firm iSuppli, cover several types of processors, including x86 and RISC-based processors.

Intel is the largest manufacturer of chips of any kind in the world, with revenues of $37.6 billion, while its next largest rival in the processor space is AMD with revenues of $5.8 billion.

Smaller rivals have periodically tried to dethrone Intel in the processor business, but have not succeeded. The most recent example was Transmeta, which stormed the market with an innovation in low-power processors in the early part of this decade. Its initial processor, Crusoe, sipped power and created a lot of buzz. But Intel and AMD quickly matched Transmeta’s power-efficiency initiatives but with higher-powered processors. Transmeta transitioned into an intellectual property company and then put itself up for sale. In January digital video processor company Novafora completed its acquisition of Transmeta.

Because of its size, Intel is the only processor maker left that has the funds necessary to own its own chip fabrication facilities. AMD recently spun out its manufacturing operations into a separate company. And AMD and IBM, together with other processor makers and chip outsourced manufacturing provider Chartered, have formed a consortium to pool their resources to design processors for "leading edge" manufacturing processes. In this context, "leading edge" means the next generation of process design, currently 45 nanometers and soon to be 32 nanometers.

By having the funds to own its own chip fabrication facilities, Intel already enjoys an advantage in manufacturing and time to market on "leading edge" process technology.

Leading-edge processor manufacturing facilities cost billions of dollars to build and become obsolete in a few years.

AMD shares had climbed more than 6 percent in midday trading Monday. Intel shares were steady. 

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com