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Sun 7 Jun 2009 04:00 AM

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Chip wars

The record books have been re-written with Intel receiving a US$1.45 billion fine from the European Commission. Unsurprisingly AMD were quick to trumpet their approval in the pair's latest skirmish. ACN reports.

Chip wars
OTELLINI: We believe this decision is wrong and ignores the highly competitive nature of the microprocessor market.
Chip wars
MEYER: AMD is looking forward to moving away from a world ruled by Intel to one that is ruled by constumers instead.

The record books have been re-written with Intel receiving a US$1.45 billion fine from the European Commission. Unsurprisingly AMD were quick to trumpet their approval in the pair's latest skirmish. ACN reports.

The European Commission has slapped Intel with a record US$1.45 billion fine, the highest ever imposed on an individual company, for allegedly violating antitrust rules and indulging in practices that hinder fair competition.

Speculation surrounding the decision reached a crescendo early in May, with many predicting that Intel would face a harsh fine for anti-competitive practices the company is accused of having carried out over the years. From October 2002 through to December 2007, it is claimed that Intel used its dominant market position to offer wholly or partially hidden rebates to computer manufacturers on the condition that they bought all, or almost all, of their x86 CPUs from the company.

The world's largest chip manufacturer was also said to have made direct payments to a ‘major retailer' for only stocking computers with Intel CPUs. The Commission added that it "does not object to the rebates in themselves but to the conditions that Intel attached to those rebates."

Additionally, Intel is purported to have paid manufacturers to halt or delay the launch of specific AMD products and the sales channels made available to them.

"Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years. Such a serious and sustained violation of the European Union's antitrust rules cannot be tolerated," competition commissioner Neelie Kroes said in an official statement, adding that they would closely monitor Intel's compliance with this decision.

Paul Otellini, Intel's president and CEO, has lashed out in response to the ruling, stating that the company will appeal: "Intel takes strong exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace. There has been absolutely zero harm to consumers. Intel will appeal," an official statement from Otellini reads.

"We do not believe our practices violated European law. The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not. The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence that contradicts the assertions in this decision," he adds.

Intel's US$1.45 billion fine is the largest imposed on any individual company, exceeding even the 2004 European Union ruling against Microsoft, which involved a $655 million fine. While it might seem like a hefty price to pay, it does reflect the current worth of the global x86 CPU market which amounts to $30 billion per year, with Europe accounting for nearly 30%.

Dirk Meyer, AMD president and CEO was quick to endorse the decision, releasing a statement soon after the decsion stating that the ruling was an important step toward establishing a truly competitive market: "We are looking forward to the move from a world in which Intel ruled, to one which is ruled by customers."

"The European Union decision will shift the power from an abusive monopolist to computer makers, retailers and above all PC consumers," claims Giuliano Meroni, President of AMD in the EMEA region.

The reaction of AMD comes as no surprise, given that the former chairman Hector Ruiz, wrote an open letter attacking Intel back in 2007, when the European Commission first filed the charges against the chip giant."This is not an isolated incident. The European Commission's charges are similar to conclusions of the Japan Fair Trade Commission in 2005 and reflect conduct that Korea's antitrust body is also investigating. In the United States and Japan, private litigation is focusing on the same pattern of abuse. Of course, the framers of antitrust laws don't care whether this or that company succeeds in the marketplace.

That's the way it should be. The essential purpose of antitrust laws is to tear down artificial blockades to competition, and to promote efficient economic productivity and the welfare of consumers," Ruiz wrote in the letter.

The cheering won't necessarily be all that loud at AMD, as the company has been embattled with sluggish financial results in recent years. The world's second biggest chip manufacturer reported a net loss of over US$3 billion for the entirety of 2008. Intel by comparison posted a net profit of $5.3 billion for the last financial year.

While financial losses are expected for most organisations in the current economic conditions, AMD also reported a net loss of US$3.3 billion for fiscal 2007. Early results for the first quarter of 2009 were not much better, with AMD posting a net loss of $416 million. This report was slightly unusual, as it included its newly spun-off semiconductor manufacturing corporation, GlobalFoundries. The chip foundry will act as an outsourced manufacturer for AMD and was established in partnership with the Abu Dhabi Government-owned Advanced Technology Investment Company.

Intel once again crossed swords with AMD over GlobalFoundries, claiming in March that the new spin-off is not recognised as a subsidiary and breaches the patent cross-license agreement that both companies entered into in 2001.

"Intellectual property is a cornerstone of Intel's technology leadership and for more than 30 years, the company has believed in the strategic importance of licensing intellectual property in exchange for fair value. However AMD cannot unilaterally extend Intel's licensing rights to a third party without Intel's consent," said Bruce Sewell, senior vice president and general counsel for Intel.

AMD hit back, declaring confidence in its claim that the chip foundry does not breach the existing agreement. In statements released in response to Intel, AMD accused the Santa Clara-based firm of trying to distract attention away from the antitrust case with the European Union.

"Should this matter proceed to litigation, we will prove that Intel fabricated this claim to interfere with our commercial relationships and thus has violated the cross-license," AMD wrote in a company statement in March.

The company also claimed that Intel's attempt to terminate AMD's license itself constitutes a breach of the agreement, which gives AMD the right to terminate Intel's license.

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