EU Expected to Fine Processor Maker Intel in AMD Antitrust Complaint

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.