Intel Antitrust: Trouble for All Tech Companies

The United States Federal Trade Commission recently began a formal antitrust investigation into Intel’s (Nasdaq: INTC) business practices. This action is not simply a problem for Intel, but should serve as a wake-up call for the entire technology industry and anyone who values innovation.

Some of the drivers behind the Intel inquiry are complaints by its competitor, Advanced Micro Devices (NYSE: AMD) . Both AMD and Intel compete to provide microprocessors for computers, with Intel holding a larger portion of the market. For more than 15 years, AMD has complained about Intel, arguing that the company cuts prices and offers discounts in attempts to monopolize the market. The United States government has rejected such claims in the past, but now that there is a new FTC chief, the investigation is moving forward.

The idea that lowering prices for consumers is anticompetitive is so off-base that it would be laughable if it weren’t being wielded by politically motivated individuals such as New York Attorney General Andrew Cuomo. He launched formal proceedings in January, accusing Intel of “potential anticompetitive conduct.” Cuomo’s investigation just happens to coincide with AMD’s plans to locate a new US$3.2-billion factory outside of Albany, capital of New York state. The attorney general of California — where both Intel and AMD are located — rejected an invitation to join the action.

Strong Competition
If there were no competition in the market, an antitrust inquiry might be less objectionable. However, greater access to computing power is getting continually cheaper precisely because competition remains strong.

“There is absolutely competition in the marketplace,” says Dean McCarron of Mercury Research, a research firm focusing on PC-related semiconductor and components markets.

Because of Moore’s Law, McCarron says that products in this space change every year and a half or so. “That’s the treadmill everyone is on. If [the companies] don’t constantly improve their manufacturing processes, they will be at a competitive disadvantage.” Intel might be a big firm, but if it makes any mistakes, competitors can gobble up its market share.

As it turns out, last year AMD made a rather big mistake on their quad-core chips that impacted their position in the server market. “We blew it and we are very humbled by it,” CEO Hector Ruiz told Wall Street analysts last December. AMD’s share of the server market is now about half of what it was at its peak, but it is still doing reasonably well in the desktop and mobile markets, according to McCarron.

Buying Time?
Given that competition is so intense in the microprocessor market and in the technology sector in general, it’s not hard to see why competitors would attempt to deploy government bureaucrats as an additional weapon in their competitive arsenal. Filing antitrust complaints against competitors forces them to divert attention and resources away from research and development and into wasteful litigation. Indeed, Intel recently indicated that it is planning to increase the size of its lobbying operations in Washington.

From a short-term business perspective, antitrust complaints against one’s competitor might make sense if it buys some critical time for the company to play catch-up in the marketplace. From a public policy perspective, however, antitrust actions intended to slow down legitimate competition are extremely harmful and should be avoided. That’s because such actions divert resources away from healthy market activities such as boosting efficiency and conducting the research that keeps American companies in the top spot.

Foreign governments are quite aware of how such litigation can be used to slow down competition from America, which helps to explain why the European Union, Korea, Japan and, most recently, China, are getting into the antitrust game. When it comes to Intel, the EU began an investigation in January and the Korea Fair Trade Commission announced last week that it is fining Intel 26 billion won (US$25.2 million). However, Intel is not the only company at risk. Any company that comes out on top in the technology industry is fair game.

Wasteful Behavior
After years of struggling to fight antitrust claims, Microsoft (Nasdaq: MSFT) is still spending significant resources battling antitrust claims in Europe; Apple (Nasdaq: AAPL) is under investigation in various European countries; and Qualcomm (Nasdaq: QCOM) is already subject to an official EU competition commission investigation. What American regulators can do to fight these rent-seeking activities from abroad is to start by dismissing such claims at home.

Antitrust legislation was supposed to inject fairness into the marketplace, but in reality it is usually used as a competitive weapon that rewards wasteful behavior. Intel is not the only company at risk. This is a problem the entire tech sector must address.

Sonia Arrison, a TechNewsWorld columnist, is senior fellow in technology studies at the California-based Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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