Intel Fined Record $1.4 Billion By EU

AOIFE WHITE, AP Business Writer, May 13, 2009

BRUSSELS — The European Union fined Intel Corp. a record $1.44 billion on Wednesday, saying the world’s biggest computer chip maker used illegal sales tactics to shut out smaller rival AMD.

The fine exceeded a monopoly abuse penalty for Microsoft Corp. last year.

Intel, based in Santa Clara, California, has about 80 percent of the world’s personal computer microprocessor market — and faces just one real rival, Advanced Micro Devices Inc.

The European Commission says Intel broke EU competition law by exploiting its dominant position with a deliberate strategy to keep AMD out of the market.

It says the company gave rebates to computer manufacturers Acer, Dell, HP, Lenovo and NEC for buying all or almost all their x86 computer processing units, or CPUs, from Intel and paid them to stop or delay the launch of computers based on AMD chips.

Regulators said Intel also paid Germany’s biggest electronics retailer, Media Saturn Holding — which owns the MediaMarkt superstores — from 2002 to 2007 to only stock Intel-based computers.

This meant workers at AMD’s biggest European plant in Dresden, Germany, could not buy AMD-based personal computers at their city’s main PC store.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years,” said EU Competition Commissioner Neelie Kroes. “Such a serious and sustained violation of the EU’s antitrust rules cannot be tolerated.”

Kroes joked that Intel would now have to change its latest global ad campaign — “sponsors of tomorrow” — to proclaiming “the sponsor of the European taxpayer.”

“I can give my vision of tomorrow for Intel here and now: Abide by the law,” she added.

EU regulators said they calculated Intel’s fine on the value of its European chip sales over the five years and three months that it broke the law. Europeans buy some 30 percent of the $30 billion in computer chips sold every year.

They could have gone even higher as EU antitrust rules allow them to levy a fine of up to 10 percent of a company’s annual global turnover for each year of bad behavior. Intel’s worldwide turnover was $38.8 billion in 2007.

Intel had no comment ahead of a news conference at 1 p.m.

European consumers group BEUC welcomed the fine and said Intel should be held to account to consumers through civil suits in European courts.

“Intel should be liable to compensate the victims of its illegal practices,” said Monique Goyens, head of the group. “Consumers have been paying too much for their computers and they should be compensated.”

The European Commission also ordered Intel “to cease the illegal practices immediately to the extent that they are still ongoing” and warned that it would check that the company was complying.

The manufacturer rebates started in 2002, the EU said, with most ending in 2005 — apart from a 2007 deal for one unidentified company to only source notebook computer chips from Intel.

Regulators said rebates that give discounts for large orders are illegal when a monopoly company makes them conditional on buying less of a rival’s products or not buying them at all.

Manufacturers depend on Intel to supply most of the chips they need and faced higher costs if they lost most or all of a rebate by choosing AMD chips for even a small order.

Hewlett-Packard buys a fifth of Intel chips with Dell taking 18 percent, according to market research from Hoovers.

The discounts were so steep that only a rival that sold chips for less than they cost to make would have any chance of grabbing customers, the EU executive said.

It said AMD offered 1 million free chips to one manufacturer — which could not accept because that would lose it a rebate on many millions of other chips. It only took 160,000 free chips in the end, regulators said.

Intel’s payments to manufacturers ordered the company to delay the European launch of AMD’s first business desktop by six months. They were also paid to only sell the AMD line to small and medium companies and to only offer them directly to customers instead of to retailers.

Other manufacturers were paid to postpone the launch of AMD-based notebooks by several months, from September 2003 to January 2004 and from September 2006 to the end of 2006 — missing the key Christmas market.

The European Commission said Intel tried to conceal the conditions attached to these payments and details only emerged from e-mails that regulators seized in surprise raids on the companies.

But the EU charges also cover a time when AMD managed to take market share from Intel by launching higher performance microprocessors for servers in 2003, previously an Intel stronghold.

Intel fought back successfully by rolling out Core chips. More recently, it has grabbed more market share with Atom chips for netbooks.

EU regulators are not the only ones chasing Intel — South Korea fined the company $21 million last year.

And the U.S. may be stepping up action. The Federal Trade Commission upgraded a probe into Intel last year — and as the Obama administration is set to take a more aggressive approach against monopoly abuse by reversing a strict interpretation of antitrust law that saw regulators shun such cases.