Competitor’s Court Challenge Could Raise Intel Chip Prices

Published July 1, 2008

Chipmaker Advanced Micro Devices, Inc. (AMD) has accused Intel Corporation of paying and pressuring large computer manufacturers not to purchase AMD chips.

AMD, based in Sunnyvale, California, claims Intel is marketing its computer chips to manufacturers at below-cost prices to garner a monopoly in the microprocessor industry–a tactic referred to as “predatory pricing.”

The accusation came in a May 5 filing with the U.S. District Court in Delaware, as part of AMD’s long-running antitrust suit against the rival chipmaker.

Some analysts are expressing skepticism about the merits of AMD’s suit. “Really, there is no evidence of this type of behavior,” said Daniel Ballon, Ph.D. of the Pacific Research Institute in San Francisco, California. “How do you define what below cost is? That’s what [Intel] is willing to charge.”

AMD’s Fourth Try

The June 2005 antitrust suit of which this filing is a part is AMD’s fourth antitrust effort against Intel. The first went before the Federal Trade Commission, which declined to pursue the matter, shortly before 2000. The second was to regulatory authorities in the European Union (EU). “AMD essentially ran to Europe, and the European regulators, at first, said no. Then AMD opened a factory in Dresden, and now suddenly they want to protect AMD,” Ballon said. European regulatory authorities usually seek to protect the competing firm, not to ensure and protect product competition as U.S. regulators seek to do.

The European Union launched its investigation of Intel initially in late 2000, two years after AMD built its Dresden factory. “That investigation went on for two years and then went slightly dormant,” said Intel spokesman Chuck Mulloy.

In June 2005 AMD filed its third antitrust suit, this time in the United States, which led the EU to reopen its Intel antitrust investigation. Shortly thereafter, European regulators conducted morning raids in four Intel offices. In January 2008 New York Attorney General Andrew Cuomo opened the fourth investigation into Intel, looking for possible antitrust violations in New York state.

Prices Dropping Anyway

Data compiled by the U.S. Bureau of Labor Statistics shows prices for microprocessors have dropped by more than 42 percent between 2000 and 2007. That’s the greatest drop among all the 1,200 products the bureau tracks.

“For a court to define what is a valid cost [for a microprocessor] is [unusual],” Ballon said. “The Supreme Court has said that low prices are good for consumers. The purpose of antitrust law is to benefit consumers. Raising rates [to settle AMD’s antitrust compliant] is itself anti-competitive.”

Thomas Cheplick ([email protected]) writes from San Francisco, California.