Intel CEO fires back at EU

In a conference call this morning, Intel CEO Paul Otellini responded aggressively to the allegations attached to the $1.45 billion fine levied by the European Union.

The fine was levied because EU regulators determined that Intel had violated antitrust legislation and engaged in anticompetitive practices to exclude competitors from the market for x86 (Intel-compatible) processors, the Commission said in a statement Wednesday.

Otellini began with an opening statement, citing the Commission's allegations of the chipmaker "granting conditional rebates, where the conditions just weren't just volume-based but allegations about exclusive dealings or in one case exclusivity on retail shelves."

"Intel strongly disagrees with this decision. We do not have those kinds of conditions in our contracts. Our contracts are straightforward. They're consistent worldwide and they're volume-based: the more you buy, the less you pay," he said.

Otellini said Intel will appeal the decision. "We intend to appeal this decision to the (EU) Court of First Instance. We believe a significant amount of evidence was either ignored or disregarded or both by the case team that would refute the allegations," he said, adding: "We intend to abide by whatever was written in the decision as we go through the appeal process."

Responding to a question about the evidence that Intel showed to the EU, Otellini said that OEMs (that is, PC and system suppliers) have stated they were no exclusive deals. "There are a number of documents that refute what was claimed here. In some cases, OEMs made statements that they were not exclusive deals and they were not under conditional terms and those documents were not allowed either into the case file or used properly by the case team in making a determination," he said.

He continued: "The process is originating from a single complainant--AMD. None of the customers complained as part of it or joined the complaint," Otellini said. "I don't see any consumer or competitor harm happening here."

Answering a question about how will this affect Intel business practices, Otellini said he hasn't seen the more than 500-page document yet. "The two-and-a-half page summary released to us did not include what the specific remedies they're asking for are. If it is about 'don't do conditional rebates based on exclusive terms,' that one's easy: we don't do conditional rebates," he said, referring to special rebates alleged by the EU.

Responding to questions about what the U.S. federal regulators may do, he said: "There is an investigation at the FTC. There's also one in the United States at the New York Attorney General's office. Intel is fully cooperating with both of those. We've produced evidence, testimony and so forth. The FTC has had a position on antitrust which is very much comparable to the EU's so we're actually being looked at under the same lens today by both parties."

"The dynamics of competition"
A question was posed about Intel and AMD competition and how that may change as a result of the EU decision. "It's hard to imagine that the dynamics of competition would change," Otellini said. "Most customers buy from both suppliers today. Most customers buy more or less from each supplier depending on the quality of the product, the competitiveness of the product, and the pricing. That dynamic hasn't changed in my career at Intel, which is 35 years. I don't expect it to change. I don't think a customer is going to put him or herself at a disadvantage by buying an inferior or more costly products, just to try to walk the lines that may be artificial."

And in response to a question about past government actions in other countries and the size of the fine,Otellini said, "Korea imposed a fine of $23 million dollars and Korea is not 1/1000th the size of Europe. There seems to be no correlation between the number and the process."

Answering another question about alleged wrongdoing: "In Japan there was no admission of (Intel doing) wrong and there was no fine. What they asked us to do was something we were already doing in terms of the way we write our contracts. Essentially no change to our business practice. In Japan, three years of subsequent audits in Japan with no violations or no additional comments." About past U.S. investigations, Otellini said: "We were investigated before and we came out just fine."

In response to question about Intel's European operations, Otellini said, "Intel has something north of 5 billion euros invested in Europe, 6,000 employees--the majority of those employees are in Ireland--the fourth largest manufacturing site in the world and the largest outside of the U.S. That site produces some of our most advanced products. We see no change to that or to that investment. We have labs and engineering sites spread throughout Europe. No change to that."

Otellini said the sales and marketing team in Europe may be affected, however. "The sales and marketing team may be impacted by whatever is buried inside that 500 pages in terms of procedures that they have to follow and so forth but that's to be determined."

A question was asked of whether customers are afraid of Intel. "As to our customer's fear: It's absurd to think that we would not sell product to someone who happened to not like a particular comment or term. This is a very competitive business. Our customers are in most cases larger than Intel. Our customers have incredible buying power and are excellent negotiators. So, on the face of it, (the) scenario is absurd."

Finally, a question about why Intel doesn't release more documents. "Our customers don't want to it be released, I think. My understanding is that we'd be OK on that but our customers have said no." Otellini continued: in the EU summary statement, "The EU alleged that we had exclusive deals. They further alleged that they couldn't find any evidence of those exclusive deals, therefore they must be either oral or unwritten or hidden from them. I view it as being that they affirmed the fact that in fact there were no terms and conditions associated with exclusivity," he said.

Otellini continued: "These people (EU) picked up tens of millions of documents. They got everything they wanted to, it's hard to imagine that we would have terms that they wouldn't have found that exist. I am really baffled by that statement. I think it's actually helpful to us as we look through this thing that there are no documents that show what they're alleging."