Page last updated at 18:03 GMT, Tuesday, 12 May 2009 19:03 UK

Intel faces huge competition fine

By Mark Gregory
Business reporter, BBC News, Brussels

Intel is the world's largest computer maker

Intel, the computer chipmaker, is in line for one of the largest fines for anti-competitive behaviour handed out by the authorities in Europe.

The European Commission is expected to approve the penalty on Wednesday.

It is likely to be similar to the 497m euros ($650m, £480m) fine levied on Microsoft in 2004 for abusing its dominant market position.

The Commission is also set to impose a "cease and desist" order requiring Intel to change its business practices.

Some observers say the fine from the EU's executive arm could be as high a one billion euros.

'Underhand tactics'

Intel, the world's largest manufacturer of micro-processors, has been accused of giving financial incentives to computer manufacturers to exclude its smaller rival Advanced Micro Devices (AMD) from European markets.

It is of the upmost importance that the European Commission, in making its decision, will continue to ensure fair competition in high technology markets
Monique Goyens, Director General, BEUC

Intel has roughly an 80% market share, while AMD has 20%.

The case has been rumbling on for nearly a decade. In 2000 AMD filed a complaint alleging Intel was using underhand tactics.

However, it wasn't until July 2007, following high-profile raids on Intel offices, that Intel was formally charged with breaches of competition rules.

European regulators staged another round of raids on Intel offices last year.

They have been investigating the complex net of rebates and other payments Intel gives manufacturers of personal computers to encourage them to power their machines with Intel chips.

Huge market

Neelie Kroes
Neelie Kroes, the EU competition commissioner, has taken a tough line

There are more than a billon PCs worldwide, so an enormous market is at stake, although this case only directly affects Intel's European operations.

The Commission is likely to come up with two findings.
In the first it may say Intel abused its dominant market position with rebates that restricted or eliminated the use of AMD chips in computers sold in the EU.

The Commission may also require Intel to stop making the payments it deems illegal by a particular date.

The second ruling relates to the use of financial incentives to steer the development of new products.

The Commission will probably say Intel paid PC makers to delay or scrap the launch of new computers containing AMD chips.

The first ruling is about the incentives used to persuade manufacturers not to substitute similar specification, but cheaper, AMD chips in computers normally sold with Intel chips.

The second centres on payments intended to dissuade firms from designing computers around AMD chips.

Both issues are critical in deciding which chipmaker stays top dog in ferociously competitive market conditions.

Cost pressures

The personal computer industry is all about churning out the highest specification machines at lowest possible cost.

With profit margins razor-thin, even quite small variations in the cost of key components such as micro-processors affect commercial viability.

Intel has always denied that its rebates are illegal.

For a long time Intel employees have been given compliance training to make sure business practices don't go over the line into rule breaking.

The European authorities have the power to levy fines of up to 10% of a company's annual turnover when competition rules have been broken.

Intel's turnover was $38bn last year, suggesting it could be fined nearly $4bn - although no one is expecting a fine that big.

New rules

There's a lot of speculation about how exactly the Commission will formulate an order requiring Intel to change its business practices.

Europe's regulators have considerable power to stop companies making specific payments, but less influence to prescribe exactly how rule-breakers should behave instead.

This is seen as one of the most high profile and influential competition cases to come before European regulators.

However, whether or not Intel has broken the rules, the issues are by no means clear-cut. Over the years since the complaint was first made, the price of personal computers and the computer chips that go in them has fallen enormously.

It can be argued that Intel has tried to squeeze its rival out of the market, but this does not necessarily mean consumers have suffered, as prices for computers and micro-chips have continued to fall across Europe.

But the European consumers' organisation BEUC warned that the EU needed to send a strong signal about fair competition.

"It is of the upmost importance that the European Commission, in making its decision, will continue to ensure fair competition in such high technology markets in order to deliver consumer choice and innovative products and services at an appropriate price," said Monique Goyens, director general of BEUC.

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