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Intel still possible FTC target

The chip giant is still a possible target for FTC action, despite statements by executives it will come out of a preliminary investigation unscathed.

Intel (INTC) could be a target for action by the Federal Trade Commission, despite statements by executives that the chip giant will emerge from a preliminary investigation unscathed.

FTC action first came to light when Intel was served with a

Craig R. Barrett
Craig R. Barrett
subpoena in late September last year. At that time, the federal agency said it would look into whether Intel "has engaged, or is engaging, in unfair or deceptive practices...by acting to monopolize or otherwise restrict price or non-price competition in the development or sale of microprocessors or other components or intellectual property."

Yesterday, president and chief operating officer Craig Barrett said he is "very confident" the ongoing investigation into Intel's business practices will not result in any action taken against the chip giant.

Industry sources familiar with the investigation, however, say the FTC continues to build a case that may result in action against the company.

"Intel picks the winners and losers. Intel owns the direction of the [PC]. It's these broader business practices which are the larger concern," said one source at a large manufacturer that has been talking regularly with the FTC about the investigation.

Intel's march toward dominance of the core chips in a PC has been unrelenting--and unnerving for competitors. After locking down the processor market, the company has advanced into other PC chips as well as circuit boards and now dominates much of the core circuitry inside the PC.

But other sources say that while Intel does come disconcertingly close to domination in some markets, they are careful not to wipe out the competition. "You should notice that Intel's share of the processor market has held steadily at about 80 percent over the years. They are managing this," said one source, alluding to a strategy whereby Intel pushes the upper envelope on market domination but never actually breaks through to achieve an inordinate degree of domination or complete control.

This source also brought up the example of the computer's main circuit board, referred to as a "motherboard," which houses almost all the core PC components. The source said that a couple of years ago Intel was on the verge of eliminating much of the competition in this market, but then backed off, allowing competitors to gain back market share.

But FTC scrutiny continues. In remarks before a Silicon Valley group last night, Intel president Barrett indicated that the FTC continues to ask for information. "We've been handing over pages of information, truckloads of information to them," he said, adding that the requests cover a broad range of activities and a long period of time.

Barrett indicated that the investigation goes beyond details surrounding the company's entry into the graphics chip market or its legal settlement with Digital Equipment, which transferred Digital's chipmaking facilities to Intel. Asked why the government was interested in Intel, Barrett said: "This time they are responding to us because we have a relatively strong market segment share."

Still, he pointed out, "there are not specific charges that are under investigation...They are requesting information." He added later that "I hope that the government doesn't go after people just because they are successful."

There are two general potential antitrust violations where a case against Intel could be prosecuted, sources have said. First, some have said Intel has extracted demands out of customers because of its dominant market share.

But Barrett refuted this last night, asserting that Intel takes extraordinary steps to ensure compliance with antitrust laws. "We do recognize that we have an important position in the industry...that we have to monitor our actions and take great care in how we handle that position in the marketplace. We educate our sales force, we educate our management staff, we educate everybody in the company to the responsibility that goes with that market segment share...and make sure we obey the letter of the law."

Second, Intel could find itself on the hot seat if it's discovered that it has used its increasing dominance in semiconductors to get into and dominate outside markets. Intel has a history of successfully invading ancillary markets. For instance, the company became the dominant player in PC chipsets nearly overnight.

Graphics chipmakers fear a similar encroachment on their terrority, and some have been contacted by the FTC. Using dominant market share in one market to get into another can be deemed illegal under antitrust law, depending on the means used.

Barrett countered by stating that the ordinary cycle of "innovate and integrate" in the semiconductor industry can and should not be interrupted.

Legal experts said earlier that such innovation does not necessarily violate antitrust law. It depends on the means used.

Intel endured a similar investigation by the FTC between 1991 and 1993, Barrett noted, and said the company was absolved. "I am confident of the same result," he said.