This morning’s key legal action from the Federal Trade Commission against Intel Corp. (INTC) is one that has many caught off guard. The FTC alleges that the processor and chip behemoth stifled competition and strengthened its own dominant position and market share for microchips in the PC market for the entire decade. Intel is also accused of preventing PC makers from marketing and selling PCs without Intel inside.
This has very broad implications, particularly when you consider that Advanced Micro Devices (AMD) just settled its key case with Intel in recent weeks for what seemed like a mere $1.25 billion. It seemed at the time that AMD might have had the upper hand in the antitrust case, and many felt the settlement was far smaller than what “may” have come its way in a ruling. The European Union has already fined Intel $1.45 billion in May in anti-competitive practices. Intel is of course appealing this decision.
The FTC has alleged that Intel forced, or heavily influenced, Dell Inc. (DELL) and Hewlett-Packard Co. (HPQ) to not buy rival chips (mainly from AMD). International Business Machines Corp. (IBM) no longer makes PCs, but the allegations are that Intel also kept Big Blue from using rival chips before IBM sold its PC unit to Lenovo in China.
What is interesting is that the FTC alleges that Intel redesigned key software in a way that intentionally slowed or muted the performance of other chips. This goes above and beyond just Intel and AMD though. The FTC has accused Intel of trying to stifle the market for graphics processing units, which could have broad gains for NVIDIA Corp. (NVDA) as well.
The verdict will be out on this because of market share, but also because many in the technology world will only purchase Intel processors because of reliability or because of interoperability. There was a brief period where AMD got the jump on Intel in its multi-core ambitions, but that was very short-lived. The FTC has noted other superior products that could have competed, but Intel was able to hold these out of the market. There have already been kickback schemes alleged at the states level involving PC makers. This action is to prevent Intel from engaging in actions the FTC believes limit competition in the space.
What is interesting in the graphics processor market is that Intel recently furloughed its new chips in that sector, supposedly due to performance issues. In the FTC press conference this morning, one of the lawyers from the FTC just said he expects the trial to be completed within a year from now.
It is hard to know where this leaves NVIDIA because NVIDIA does not make CPUs for PCs, but it is seeing a 7% gain on the news. What it could mean for AMD is a potential bonus pay-day on top of its settlement that ended litigation, which is why its shares are up almost 5% at $9.25.
While not mentioned, a much smaller player called Transmeta tried and tried to compete in the processor market for reduced power in handheld sub-PC devices before the netbooks took the PC market by storm in 2008 and 2009. Transmeta also ended up receiving a settlement from Intel earlier this decade, but it ended up being acquired for a song by Novafora and now no longer exits.
The outcome of course depends upon the evidence and the ruling, but it seems as though the FTC is looking for a real case here rather than just a settlement. It even seems possible that Intel could have to make payments back to PC makers, although that is mere conjecture at this point. This is just the tip of the iceberg, and there will probably be another year or more of more antitrust news on this topic. Just keep in mind that the market is not at all treating this as a trust-buster suit of olden time. Otherwise shares of Intel would be down far more than 1.7% on the news.
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