FTC faces tough Intel trial

The FTC's case against Intel, now slated to start March 9, alleges that the company used its dominant position in the microprocessor market to unfairly force three computer makers--Intergraph, Digital Equipment, and Compaq--to license their intellectual property in a way that benefits Intel.

In addition, sources close to the FTC have said that the agency is investigating a broader suit that examines whether the Santa Clara, California, company's other business practices violate U.S. antitrust law.

How true all of this was then--or now--has yet to be determined. But it is indisputable that the dynamics of the market have changed profoundly since the case was conceived.

At that time, Intel controlled about 90 percent of the personal computer chip market. Now it's significantly less. Last week, International Data Corporation said that Intel's share of the microprocessor market fell to 75.7 percent in the fourth quarter, from about 87 percent a year earlier, as Advanced Micro Devices gained.

AMD's share rose to 15.5 percent from 6.6 percent in the year-earlier quarter, IDC said. Also, Intel's share in the burgeoning retail market continues to be relatively low, about 54 percent.

"They're at 30 percent in the sub-$1,000 market...This is pretty lackluster," said Ashok Kumar, an analyst at Piper Jaffray.

Moreover, the crucial market for Intel chipsets has also opened up, in effect depriving Intel of some of its clout with customers. Both Via and SiS are now offering competitive chipsets for the Pentium II processor. To date, this market was virtually controlled by Intel.

The FTC, of course, can argue around both of these points. Intel has speeded the releases of Celeron chips for the low end of the market and cut prices drastically to gain back market share. Intel is also fully in control of expansion in the chipset market because it has to agree to license the technology. Intel also charges the other companies royalties.

In addition, the FTC's case revolves mostly around how Intel threw its weight around in the workstation and server market. The company has encountered no competition from AMD and other "X86" chip vendors there. The potential ability to wield monopoly power, therefore, hasn't exactly vanished.

But the current state of affairs doesn't make the FTC's job any easier.

"This [the FTC case] is not a big deal. Maybe the FTC slaps their hands...but it's hard to make a case especially given all the publicity last year about Intel dead in the water and how the move to the sub-$1,000 market would kill them," said BancBoston Robertson Stephens managing director and senior hardware analyst Dan Niles. "I don't see [the FTC case] as effectively changing the way they [Intel] do business in any real sense going forward."

And the competition isn't likely to subside anytime soon. Intel's upcoming Pentium III is not receiving glowing previews from industry pundits, especially in comparison to AMD's upcoming K7--possibly a sign of further erosion.

"Despite the wait for [Pentium III], the chip offers little to business users or consumers not interested in 3D or video...AMD [now] has the opportunity to turn the tables and provide better processors than Intel's," according to Linley Gwennap, editorial director of the Microprocessor Report.

The market situation for Microsoft is quite different. Aside from Windows, there is little, if any, choice of operating systems for Intel PCs. Linux and the Mac OS have increased in popularity lately but have eroded Microsoft's dominance less. Microsoft also dominates the office software market and has gained ground in new markets such as the Internet browser market.

Intel's graphics chip success has been tepid
Again, Intel's circumstances are different. As its position has faltered in the traditional PC market, Intel has turned to other areas but has hardly blown competitors out of their businesses. In areas such as graphics chips--which some feared would be another potent weapon for Intel to wield--its success has been tepid.

"The year...began with Intel's introduction of its 740 [graphics chip]...that was expected to take the world by storm. Instead, that chip quietly sank beneath the waves," according to Peter Glaskowsky, a chip analyst at the Microprocessor Report.

Intel remains a distant third behind ATI Technologies and S3, according to 4th Wave.

Hatch chimes in
It is clear that Intel is still making gobs of money as its financials continue to be strong and its market share remains healthy. But it is a very different market, and political luminaries, though leery of de facto Intel partner Microsoft, have chimed in on Intel's side to caution the FTC on this account.

Senate Judiciary Chairman Orrin Hatch (R-Utah) in September said the Federal Trade Commission needs to be "careful" as it pursues Intel for alleged violations of antitrust law.

Hatch cautioned that the "FTC and antitrust enforcers generally should be rather certain that any effort to enforce intellectual property rights both is intended to and actually will injure competition in a significant way, before concluding that it represents monopolistic behavior."