FTC says computer buyers benefit from Intel deal (Update 2)

Aug 04, 2010 By JORDAN ROBERTSON , AP Technology Writer
Bureau of Competition Director Richard Feinstein, left, and Federal Trade Commission (FTC) Chairman Jon Leibowitz, take part in a news conference at the FTC in Washington, Wednesday, Aug. 4, 2010, to discuss the Intel antitrust case. (AP Photo/Drew Angerer)

(AP) -- The Federal Trade Commission is trumpeting its settlement with Intel Corp. as a victory for consumers who have overpaid for computer chips for a decade, though computer buyers shouldn't expect a sudden drop in prices.

The deal announced Wednesday represents the end to the harshest antitrust lawsuit Intel has faced yet from government regulators, and it imposes the strictest set of changes onto the way Intel does business.

But any changes as a result of the FTC's actions would likely be gradual, and possibly imperceptible, to most people.

One reason is that the prices for computer chips have steadily fallen anyway as technological advancements make it cheaper for companies such as Intel to make more powerful chips. Consumers have gotten used to getting more computer for less money every time they go shopping.

The FTC's case is built on the argument that those prices haven't fallen as fast as they could have. It has accused Intel of contributing to that by abusing its position as the No. 1 supplier of both central processing units (CPUs) and graphics processing units (GPUs) to box rivals out of the market and stifle competition.

CPUs are the "brains" of computers and are among their most expensive parts, often making up about 15 percent to 20 percent of a computer's price. GPUs are chips that make graphics look good on computer screens.

FTC Chairman Jon Leibowitz said Intel's behavior stepped well over the line - moving beyond "the type of aggressive competition on the merits that we all encourage and into the realm of unfair, deceptive and anticompetitive conduct."

Intel has long denied the charges and has pointed to the industry's falling prices as evidence that the market is functioning normally.

The company's general counsel, Doug Melamed, said the settlement "provides a framework that will allow us to continue to compete and to provide our customers the best possible products at the best prices." Melamed added that the settlement puts an end to the "expense and distraction" of the litigation.

As part of the deal, Intel has agreed not to pay computer makers for avoiding rivals' chips or retaliate against them when they do pick competing products - things Intel has long maintained it wasn't doing anyway.

Those were essentially the terms of a $1.25 billion settlement Intel struck last year with Advanced Micro Devices Inc., a key rival whose complaints piqued regulators' interest. The aftershocks of AMD's campaign still reverberate: Intel is still contesting a $1.45 billion antitrust fine in Europe and separate cases in South Korea and New York state.

The FTC deal goes further than previous cases in mandating that Intel needs to be friendly to its rivals in other significant ways.

Those include modifying its intellectual-property agreements with AMD, Nvidia Corp. and Via Technologies Inc. so that those chip-makers can more easily do mergers and joint ventures with other companies without the threat of a lawsuit from Intel.

That is important because AMD's recent decision to spin off its factories into a separate company - which AMD needed to avert financial ruin - triggered a showdown with Intel over the legality of that move. Intel's leverage over AMD in that matter likely played a key role in its settlement negotiations with AMD and in AMD settling for far less than it could have won at trial.

Jim McGregor, a semiconductor analyst with market researcher In-Stat, said technology companies have long used such agreements as weapons.

"We've seen that over and over again where they've used that as a hammer," he said. The FTC's case is a "huge statement to the industry that, 'You're reaching too far.'"

McGregor added that chip prices typically fall about 20 percent per year, but that chip-makers try to counteract that by rolling out newer products that command higher prices. He said the FTC is "reaching a bit" with its argument that consumers would see better prices as a result of the settlement.

"We've seen dramatic decreases in prices over the past decade," he said. "The FTC is trying to spell out the rules of engagement for the high-tech industry. This is kind of a warning shot: 'You guys have to play nice.'"

Investors appeared unmoved by the settlement, which was expected.

"I think it's more of a formality than anything else and don't think it materially changes the game for anybody," said Patrick Wang, a semiconductor analyst with Wedbush Securities.

"It records progress for both AMD and Nvidia by putting in writing some rules that Intel must abide by," Wang said. "However, I don't think Intel has been involved in any 'funny business' for a while now. But most importantly, it doesn't help improve AMD and Nvidia's competitive roadmaps - the key bottleneck for both guys."

Shares of Intel, which is based in Santa Clara, Calif., fell 20 cents, or nearly 1 percent, to $20.52 in morning trading Wednesday.

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User comments : 4

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knikiy
4.7 / 5 (3) Aug 04, 2010
A simplified summary, but: check out the history of "one laptop per child" and you'll see that Intel did an end run around that effort that effectively squashed it but led to the netbook. They want to control the market. What does that do to innovation?
DaveGee
not rated yet Aug 04, 2010
I have to laugh...

"But any changes as a result of the FTC's actions would likely be gradual, and possibly imperceptible, to most people."
ArcainOne
5 / 5 (3) Aug 04, 2010
Look I've never liked intel because of their prices which is why I always bought AMD, in my opinion they have just as much power and often for a fraction of the price of an intel chip. The computer market isn't broken, and with them being number 1 they can feel free to hike their prices as high as they want, I will continue to purchase AMD for much less.

If you follow the hardware market it has always followed a pattern. Intel releases some new technology, about half a year later AMD improves and releases a better variant for cheap. Some times AMD will release something new, and about half a year later Intel will release a better variant... but still more expensive. Businesses mostly buy Intel (why they are number 1), The rest of us with a budget buy AMD. It is just like how Businesses mostly use Internet Explorer, while the rest of us smart techies use ANY other browser.
MarkyMark
5 / 5 (2) Aug 05, 2010
AMD is much better in my opinion. True there chips are not always as good [a small difference usually] but are always cheaper. As an example i have a Quad core in my PC that costs £140 and the Intel equivelent costs £700!!!! They are both about the same performance wise so it was a very easy choice.