Intel chips away at EU allegations

US chipmaker Intel is set to respond to the European Commission’s charges of anti-competitive conduct at the beginning of January.

The filing, according to a source close to the investigation, will rebut the Commission’s central charge that the firm undermined competition on the microprocessor market by selling units below cost to strategic customers.

Part of Intel’s submission will hinge on the premise that rival Advanced Micro Devices (AMD) was unaware of the manufacturing cost of microprocessors for Intel when it lodged formal complaints about the latter’s pricing practices. The source estimated that antitrust regulators could take three to four months to work through the filing, which is several hundred pages long and responds to a statement of objections issued by the Commission in July.

The Commission’s investigation into the business practices of the world’s largest chipmaker has been going on for six years. The source said that the Commission was afraid to drop the case. "AMD is so litigious," he said. "If the Commission drops the case, AMD will take it to court for failure to do its duty." Such proceedings could, he said, drag on for years.

Intel would be entitled to request a public hearing of the investigation in next month’s submission. But the company would most likely want to gauge the Commission’s reaction to its filing before taking further steps, said the source.

Intel currently controls 80-90% of the microprocessor market, a share that has largely been attained through predatory sales practices, claims AMD. The German chipmaker claims that Intel unlawfully fenced off a substantial proportion of the global market over a number of years by offering computer-makers rebates and discounts in exchange for varying degrees of loyalty.

AMD, which has posted losses for four quarters in a row, has also complained to regulators in Asia and the US about the behaviour of its rival. Japanese regulators ruled that Intel had breached its antitrust rules in 2005. Regulators in South Korea presented Intel with a list of charges this year and are currently considering penalties.

The US’s Federal Trade Commission decided in October against opening a formal antitrust investigation, but civil proceedings are underway at a federal court in Delaware and a trial is scheduled to begin in spring 2009.

In a 48-page document submitted to the US court in June 2005, AMD reported that former Compaq CEO Michael Cappellas had to stop buying its processors because he had a "gun to his head".

An industry insider said that AMD’s current woes were partly a result of Intel’s behaviour. "Some of the problems are homemade," he said. "Some were down to not being able to get investment to sustain [AMD’s] pace of development even when it was in the lead position." Limited access to sales markets, he said, had "damaged the bottom line" and subsequently harmed investments in R&D and product development.

Earlier this year, Intel CEO Paul Otellini was quoted in Business Week as saying that in the event that the Commission did not broaden its case, the worst case scenario would be to "write a cheque". Intel could be fined up to 10% of its global annual turnover if found guilty of stifling competition.

US chipmaker Intel is set to respond to the European Commission’s charges of anti-competitive conduct at the beginning of January.