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Antitrust fine doesn't change Intel-AMD balance

The $1.45 billion fine will cause headaches for Intel's sales force, but the AMD-Intel war will still be won or lost primarily on the companies' technology.

There's no question that the European Commission's $1.45 billion antitrust fine against Intel is a lot of money. But don't expect Wednesday's antitrust enforcement move to radically change what you see when it's time to buy your next PC.

Antitrust actions can have a dramatic effect when a decision breaks a company into pieces, but the biggest factors in the rivalry between Intel and AMD--and increasingly Nvidia, too--is technology. So while AMD can be pleased with the European Commission's conclusion, it's got bigger worries.

AMD investors cheered the European Commission's antitrust fine against Intel on Wednesday.
AMD investors cheered the European Commission's antitrust fine against Intel on Wednesday. Google

"They have a marketing problem. They need to increase size of their voice," said Technology Business Research analyst John Spooner. "And they've got to run faster than Intel. They've got to have products that really are better and provide more value."

AMD has been tirelessly agitating for antitrust actions against its larger rival, and it's made some headway. Japan and South Korea have come down against Intel, and the Federal Trade Commission in the United States is involved in its own Intel investigation--not its first. AMD also has its own private antitrust suit under way in Delaware.

But when it comes to taking on Intel, a far bigger factor has been technology--not just processor designs, but also manufacturing skill and capacity that means chips can be priced competitively while still being profitable.

Market share changes
Indeed, AMD made its biggest recent inroads against Intel when AMD's Opteron and Athlon processors could outgun Intel's Xeon and Pentium models, which used an outdated architecture. But Intel reclaimed that share once it modernized its designs at the same time AMD stumbled with its own manufacturing problems.

AMD CEO Dirk Meyer
AMD CEO Dirk Meyer AMD

AMD's troubles continued into 2008, when it installed Dirk Meyer as the new CEO and undertook a plan to spin off its manufacturing business.

But Wednesday's decision gave AMD a new cause for optimism, including the hope it will materially improve sales.

"We are hopeful that it will. When we have products people want to buy we won't be in position that's artificially constrained by payments competitors are making to exclude us," said Harry Wolin, AMD's senior vice president of legal affairs. He did add, though, that technology and business practices remain important: "We still have to deliver fine products to our customers and treat our customers and partners well. We have to manufacture products with our partners."

Antitrust actions can change behavior, to be sure. Microsoft was largely unscathed by the U.S. Justice Department's antitrust suit that began in the 1990s. But its legacy arguably lives on: the company is exercising some self-restraint when it comes to how strongly it promotes its online services through dominant widely used products such as Windows and Internet Explorer, and it's not because Microsoft doesn't fiercely want a stronger online presence.

But in a conference call with reporters, Intel Chief Executive Paul Otellini argued that the overall market dynamic isn't changing: technology still is king when computer makers decide whether to buy AMD or Intel chips.

"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," Otellini said. "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 a line that may be artificial."

Intel CEO Paul Otellini
Intel CEO Paul Otellini Intel

Antitrust headaches
The European Commission's Wednesday conclusions and fine certainly didn't make life any easier for Intel's sales force, though. It concluded that Intel used partially or completely hidden rebates to ensure computer makers would use Intel chips exclusively or nearly so. It also concluded Intel paid computer makers to cancel or delay the introduction of products using rival chips.

"My experience with salespeople is they'll say anything to get a sale. Intel now has to put some constraints on sales reps that would not be there if they had less than 70 percent market share in the European Union," said Gartner analyst Martin Reynolds. But that won't be enough to hobble Intel. "Intel's biggest challenge is not getting rid of competition, it's making sure of market growth."

The European Commission's move could further other actions against Intel, too, Reynolds said.

AMD's private antitrust case also alleges Intel rebates conditioned on exclusivity or near exclusivity and Intel payments conditioned on delaying AMD-based products, Wolin said--and any settlement awards or damages that Intel might end up paying in that case would go to AMD, not wronged taxpayers. That case is scheduled to go to trial in March 2010.

Though AMD's Wolin wouldn't comment on it, the Justice Department's new antitrust leader, Christine Varney, promised tougher enforcement of antitrust regulations, too.

Intel strongly denied any wrongdoing and is appealing the European Commission ruling. Otellini said the EU wouldn't accept some contrary evidence and suggested that its lack of written proof was lack of evidence, not of Intel operating in secret.

Overall, though, just as Intel's successes won't be erased by the fine and ruling, AMD's problems won't be fixed by it. The lawyers may be paid well, but engineers still are at the heart of the microprocessor market.