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'Anticompetitive' practices may damage Intel's reputation

The European Union's antitrust findings may tarnish Intel's reputation and give rival AMD a boost, say IT observers.

The $1.45 billion fine the European Union slapped on Intel this week for violating antitrust rules tarnishes the chip giant's reputation and could give rival AMD a leg up, some IT pros said.

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One Unix application engineer at a large document management company said that while the fine seems exorbitant, Intel's anticompetitive business practices were wrong.

"The antitrust decision is on the harsh side; $1.45 billion is not pocket change [to anyone]. However, I do not respect Intel's business practice if [allegations] about them paying off PC builders and dealers is totally true," he said. "That is like the athletes using steroids to get a false edge."

Edging out the competition
The EU's European Commission (EC) for competition policy found that between 2002 and the end of 2007, Intel used anticompetitive practices to hold on to at least 70% of the worldwide market in x86 server CPUs.

The EC found that Intel Corp. gave rebates to computer manufacturers that bought all, or almost all, their x86 CPUs from Intel and gave direct payments to a major retailer on the condition that it sell computers only with Intel x86 CPUs. Intel also paid computer manufacturers to halt or delay the launch of specific products containing competitors' x86 CPUs and to limit the sales channels available to these products, according to the EC.

"Intel used illegal anticompetitive practices to exclude essentially its only competitor, and thus reduce consumer choice, in the worldwide market for x86 chips," the commissioner, Neelie Kroes, told the press. "Given that Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for over five years, the size of the fine should come as no surprise."

The $1.45 billion fine is the largest penalty ever assessed on a company in an antitrust case -- almost double that of Microsoft's $794 million anti-trust fine by the EU in 2004.

No one likes a cheater
As large as the fine is, especially in a poor economy, the bigger issue may be what this news will do to the reputation of Intel's brand in the IT community.

Intel has been playing this game since forever.
Anonymous systems administraor,
a Texas university

One systems administrator at a large Texas university said that the notion of Intel playing dirty is no surprise. "Intel has been playing this game since forever," he said. "The Intel of today is far cleaner and consumer-focused than the Intel of about 15 years ago, but world politics are different."

David Reynolds, a systems manager at the Rhode Island Blood Center, said it is important to have more than one game in town, and the EC's ruling will ensure that.

Anticompetitive practices "handcuff the consumer in the end, as we really have few, if any, choices," he said. Reynolds runs systems with both AMD and Intel chips, but it wasn't always that way. Not all his server vendors offered AMD chips. "For a while, we only used Intel, as Dell would not carry the AMD line."

Nathan Brookwood, a CPU expert and analyst at Insight t64 who uses both Intel and AMD chips, said the findings raise the question of whether AMD's inability to gain serious market share had more to do with Intel's business practices than with consumer preference.

"AMD's products hold their own against Intel. … They have set new standards and changed the way people design computers, while Intel has had to copy AMD in recent years," Brookwood said. "AMD has argued throughout this process that the issue is not so much the fines -- AMD certainly doesn't get any of the money the EC collected -- the big issue is Intel's business practices. And now we see … not everything Intel was doing was kosher."

The EC findings also solidify AMD's 2005 claims in an antitrust lawsuit about similar anticompetitive practices in the U.S. market, Brookwood said. The court date for that trial is February 2010.

"It is interesting that the EC, after raiding all of these Intel offices, came to some of the same conclusions and allegations that AMD filed against Intel in 2005," Brookwood said.

"I had always believed Intel knew there is a line in the ground and knew what not to do, and I thought they spent a lot of time educating their field agents on what lines not to cross. But when the EC sited these same incidents [that AMD alleges against Intel], it added credibility in my mind."

Intel CEO Paul Ottellini denied any wrongdoing or and said no harm came to customers. Intel is appealing the decision, but Intel agreed to comply with the EC's decision. Their compliance should help AMD, which has always been the "struggling member of the CPU market duopoly," Brookwood said.

"Clearly, both companies have made important contributions to the industry, and both should have the opportunity to play fairly," he said.

Following the decision, AMD issued a statement calling it a "step toward establishing a truly competitive market" that is ruled by consumer choice.

Let us know what you think about the story; email Bridget Botelho, News Writer.

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