EU fines Intel record $1.45B for sales tactics
BRUSSELS — The European Union fined Intel Corp. a record euro1.06 billion ($1.45 billion) on Wednesday and ordered the world’s biggest maker of computer chips to stop illegal sales tactics that shut out Silicon Valley rival AMD.
The fine, which exceeded a euro899 million monopoly abuse penalty imposed on Microsoft Corp. last year, was denounced by Intel, which plans to appeal to an EU court within 60 days.
AMD’s stock jumped in midday trading Wednesday, while Intel shares were up slightly.
“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,” said EU Competition Commissioner Neelie Kroes.
“Intel did not compete fairly, frustrating innovation and reducing consumer welfare in the process,” she said.
The European Commission also told Intel to immediately cease some sales practices in Europe, though it refused to say what those were. Intel said it was “mystified” about what it was supposed to change but would comply with the “extremely ambiguous” EU order.
Intel, based in Santa Clara, Calif., has about 80 percent of the world’s personal computer microprocessor market and faces just one real rival, Advanced Micro Devices Inc., which has its headquarters just three miles from Intel in Sunnyvale, Calif.
The two companies have been fighting for years over what AMD claims is Intel’s intimidation of computer makers into striking exclusive deals for the chips they use in their new machines.
AMD claims the rebates and financial incentives that Intel offers to those companies for buying more Intel chips are designed to prevent AMD from gaining market share. AMD argues that Intel’s volume discounts are sometimes so steep that AMD can’t cut its own prices enough to compete without losing money on the sales.
In siding with AMD to wrap up an eight-year probe, the European Commission said Intel broke EU competition law by exploiting its dominant position, thereby limiting customer choice.
The EU said Intel gave rebates to computer manufacturers Acer Inc., Dell Inc., Hewlett-Packard Co., Lenovo Group Ltd. and NEC Corp. for buying all or most of their chips from Intel and paid them to stop or delay the launch of computers based on AMD chips.
The commission said price discounts were linked to promises from computer manufacturers to restrict AMD purchases. It said such discounts were left off Intel’s official contracts because the company “went to great lengths to cover up many of its anticompetitive actions.”
Officials said they learned of them through e-mails and statements from businesses, some seized during surprise raids.
Bruce Sewell, Intel’s general counsel, said the case was based on weak evidence and unfair inferences from a small number of documents.
Intel president and CEO Paul Otellini said “there has been absolutely zero harm to consumers.”
But AMD Chief Executive Dirk Meyer said the decision was “an important step toward establishing a truly competitive market.”
“AMD has consistently been a technology innovation leader and we are looking forward to the move from a world in which Intel ruled, to one which is ruled by customers,” Meyer said in a statement.
Tom McCoy, AMD’s executive vice president for legal affairs, said the ruling would bring consumers “greater choice, value and innovation.”
Regulators said Intel also paid Germany’s biggest electronics retailer, Media Saturn Holding, from 2002 to 2007 to stock only Intel-based computers at its MediaMarkt superstores, even in Dresden, Germany, where many AMD chips are made.
The decision does not affect Intel’s pricing strategy outside Europe but could have an important effect in the United States and Asia.
This week, one of the top U.S. antitrust officials, Christine Varney, signaled a return to trustbusting as the Obama administration dropped a strict interpretation of antitrust rules that saw regulators shun major action against alleged monopolies during the Bush years.
Kroes said Varney’s words gave her hope that the EU’s current “close cooperation” and information exchanges with the Federal Trade Commission “could go in a very positive way” in the future. The FTC upgraded a probe into Intel last year.
“The more competition authorities are joining us in our philosophy, the better it is for it is a global world,” she said. “The more who are doing the job … and with the same approach then the better it is.”
Intel’s Sewell said the concept that rebates could damage competition was an area “where the law is now in flux” and regulators were testing the boundaries.
“There is a line of thought developing primarily out of the European antitrust authorities but also perhaps being picked up by the Japanese and the Koreans that suggest that rebates can be anticompetitive,” he said.
EU regulators said they calculated Intel’s fine — 4 percent of last year’s $37.6 billion in worldwide sales — on the value of its European chip sales over the five years and three months that it broke the law. Europeans buy some 30 percent of all computer chips sold every year.
The EU could have gone even higher. EU antitrust rules allow for a fine of up to 10 percent of a company’s annual global revenue for each year of bad behavior.
The EU said the fine must be paid within three months. The money eventually goes into the EU budget, reducing the funding it seeks from European taxpayers.
European consumers group BEUC welcomed the fine and urged customers to seek damages in civil courts.
The EU said rebates like the ones Intel offered PC makers, with discounts for large orders, are illegal when a monopoly company makes them conditional on buying less of a rival’s products or not buying them at all. EU officials said the discounts were so steep that only a competitor that sold chips for less than they cost to make would have any chance of grabbing customers.
According to regulators, AMD offered 1 million free chips to one manufacturer, but it ultimately could only accept 160,000 to avoid losing a rebate on many millions of other chips from Intel.
AMD shares rose 20 cents, or 4.6 percent, to $4.55 in midday trading, while Intel gained 7 cents to $15.28.