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FTC is probing Intel's practices

The chip maker says the inquiry is being driven by smaller rival AMD's claims of anti- competitive behavior.

June 07, 2008|Jim Puzzanghera | Times Staff Writer

WASHINGTON — After sitting on the sidelines while regulators across the globe investigated allegations of improper business practices by Intel Corp., U.S. officials have decided to join in.

Under the leadership of a new chairman, the Federal Trade Commission has launched a formal investigation of how Intel wields its power as the world's largest maker of semiconductors, the company said Friday. The move set the stage for the lengthy battle between Intel and rival Advanced Micro Devices Inc. to come to a head. But it still might be years before the disputes are resolved.

Advanced Micro has alleged that Intel used steep discounts and other tactics to bully computer makers into using its microprocessors, the brains inside PCs. Intel sold about 80% of the world's computer chips in 2007, while Advanced Micro had about 13% of the market, according to ISuppli Corp.

"An awful lot is at stake," said Bert Foer, president of the American Antitrust Institute, a consumer-focused advocacy group partially funded by Advanced Micro that has urged the commission to start a formal inquiry.

With microprocessors important not just in computers but in a host of other devices, shoppers should be concerned about the competitive dynamics of the marketplace, he said.

"If it's competitive, they'll pay less," he said. "If it's dominated by one company, they'll pay more."

Intel and Advanced Micro said they had received subpoenas from the commission, which had declined to escalate an informal inquiry under its previous chairwoman, Deborah Platt Majoras.

Intel shares dropped 97 cents, or 4%, to $22.90 on Friday. Advanced Micro was off 35 cents, or 4.5% to $7.43.

The FTC inquiry comes as European regulators work to finish their own investigation into allegations that Intel abused its market dominance. Advanced Micro's complaints of anti-competitive behavior by Intel are also the subject of a continuing private lawsuit in Delaware, an investigation by New York state officials and completed investigations in Japan and South Korea.

Intel said it had received a subpoena from the FTC on Wednesday. The Santa Clara, Calif.-based company promised to "work cooperatively" with the FTC, as it said it had done since the agency started the informal inquiry in 2006. Intel said that it welcomed the investigation and that its practices were legal. The company predicted vindication.

"These investigations all stem from the same core set of complaints by AMD. It's not that we're fighting different fires on different fronts -- we're fighting the same fire over and over again," Intel General Counsel D. Bruce Sewell said. "We're certainly hopeful that at some point we get to the position as an industry where we're not spending hundreds of millions of dollars and thousands and thousands of hours dealing with complaints from one competitor about another."

But Advanced Micro said the FTC's decision to launch a formal inquiry showed that the allegations had substance.

"As the regulators have been able to obtain the evidence, they are converging on a common view of these business practices: how they harm consumers, how they insulate Intel from competition on the merits, and how it's harmful to the innovation process," said Tom McCoy, Advanced Micro's executive vice president and chief administrative officer.

FTC spokesman Mitch Katz said that the agency's investigations were private and that it did not comment on them.

Sunnyvale, Calif.-based Advanced Micro and its supporters have been pushing for several years for an FTC investigation but had been stymied under Majoras. She resigned in March and was replaced by William E. Kovacic, who has a long history on antitrust and consumer protection. Both are Republicans.

"He's thoughtful and he's scholarly and I think he's decided they want to spend some resources investigating this. But that's a long way from deciding the outcome," said John Peirce, an antitrust attorney at law firm Bryan Cave in Washington. "It doesn't surprise me that the FTC wants to investigate to see if there's any fire. There are people who claim they see smoke."

Intel is trying to put out a fire in South Korea, where the country's Fair Trade Commission fined the company about $25 million Wednesday. The regulators said Intel gave rebates to South Korean PC makers, including Samsung Electronics Co., in exchange for not buying Advanced Micro chips. Intel probably will appeal, said Sewell, its general counsel. In 2005, Japanese regulators accused Intel of violating antitrust laws. The company denied wrongdoing but did not contest the charges and promised to change some business practices.

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jim.puzzanghera@latimes.com

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