Communications - June 2010

processors inside most computers. Although four times the size of AMD, Intel was outpaced by the smaller firm in innovation. In particular, Intel is having more trouble negotiating the transition from 32-bit architecture to the 64-bit architecture that makes computers more powerful. According to New York Attorney General Cuomo, Intel has a “big competitive hole in its product development roadmap.” In 2003, AMD was the first to introduce a new-generation processor for the high-end,

Who’s right?
Who’s wrong?
the parties offer
diametrically
opposed versions
of the story.

high-margin corporate server market. Intel feared its competitor would erode its profits on this segment, since business users would be eager to purchase AMD-based desktops and notebooks.

To prevent that market shift, In-
tel paid Dell and HP to purchase Intel
microprocessors almost exclusively,
and paid Acer and Lenovo to delay the
launch of their AMD-based notebooks.
In other words, Intel paid its custom-
ers to protect a segment of its market.
Dell was by far the biggest beneficiary
of these practices. Between February
2002 and January 2007, Dell received
more than $6 billion in return for
maintaining an exclusive procurement
agreement with Intel. Without these
payments, Dell would have reported a
loss in some quarters. According to the
State of New York, the Federal Trade
Commission, and the European Com-
mission, the money that Intel paid its
customers was conditional on their
boycotting AMD’s products. In techni-
cal terms, the retroactive rebates given
to some OEM customers are loyalty
rebates, and the restrictions imposed
on OEMs’ sales policies are naked re-
strictions. In Europe, both are gener-
ally prohibited because they are per-
ceived to be anticompetitive because
they tend to exclude competitors and
reduce consumer choice.

Defendant Perspective
Intel’s version is nothing like the pre-
vious story.d Since 2000, the Santa
Clara-based chip maker has faced ag-
gressive price competition from AMD
and it has responded by defending
itself fairly. AMD’s failure to succeed
in some market segments is due to
its own shortcomings, especially in-
sufficient production capacity, not to
any action by Intel. Between 2002 and
2007, the price of microprocessors
fell by 36% on average per year and
AMD’s market share among the main
computer manufacturers has risen
from 8% to 22%. These figures contra-
dict the claims that Intel has behaved
d See “Why the European Commission’s Intel
decision is Wrong,” and “Intel’s Response to
the EC’s Provisional Non-Confidential Version
of the Commission Decision of 13 May 2009,”
September 21, 2009; http://www.intel.com/
pressroom/legal/ news.htm