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The Public Policy
The Chips Are Down at Intel
The Federal Trade Commission practices crony capitalism.
Former Intel CEO Andy Grove of Intel was Time magazine’s “1997 Man of the Year.” Now Intel is the Federal Trade Commission’s “2009 Company to Fear.”
If the FTC gets its way, Intel will be characterized not as a productive marvel that helped turn the rest of us into productive marvels. The chipmaker will be tarred as a Robber Baron instead. Competitors AMD and Nvidia are delighted — and party to the investigation.
Sometimes people make choices others would prefer they not make. But that is no reason to use force to prevent a company from offering products for voluntary sale. An FTC picking winners and losers is not capitalism. It is crony capitalism. The agency should recognize that Intel doesn’t call the shots in the microprocessor market. Consumers do.
And we consumers have many computing options. Desktop computing is only one choice in our increasingly networked world. Smartphones and sub-notebooks grow more popular every year. Who knows what the next decade will bring? Even an antitrust lawyer at the FTC is allowed to adopt these options.
It’s true that Intel’s chip sales of $32.8 billion are 80 percent of the market — as measured by number of microprocessors inside computers. But most chips don’t go in computers. They go into cars, phones, appliances, toys, and seemingly just about anything else these days.
Chips in “Wintel” desktop computers increasingly constitute just one subset of a vast semiconductor market. Only a small fraction of the chips in non-PC devices are Intel’s — and these devices are where the future lies. Samsung, Texas Instruments, and other companies are dominating Intel in this larger market.
Bottom line, the relevant market cannot be defined merely as “computer chips.” All chips — perhaps barring Pringles, Lay’s and Doritos — are a part of the picture.
Intel’s absence from expanding non-PC markets is more than enough to topple its dominance in coming years. Regulators should leave it alone. A generation from now, any consumer product that doesn’t include a chip or two will be an aberration.
By all appearances, Intel’s past and current disputes with its partners appear to be ordinary patent disputes and exclusive contracts and rebates hyped into “antitrust” violations. Oddly enough, Intel was accused a few years ago of preventing computer manufacturers from installing its chips in a patent dispute case. Of course, it would be more efficient simply to shoot customers as they walk in the door.
Now, the firm stands accused of the exact opposite: shoehorning its chips in at the expense of a rival like AMD. Regulators’ charges against Intel have changed over the years, but their verdict always remains the same: guilty.
The FTC’s desire to attack a company already in the crosshairs of foreign competition authorities indicates that the agency fundamentally doesn’t care about anything other than taking down a target. Consider the fact that anybody who wants a non-Wintel computer can get one. Intel is no “essential facility,” similar to electrical power. Many companies are in the computing and architecture game. The market is large, diverse, and competitive.
Internal disputes regarding computer building are squabbles among equals, and they can be resolved. Intel could just as readily claim that computer makers could bully it, since they can demand and get significant price concessions.
Competing chipmakers have no fundamental right to piggyback on Intel’s architecture, or to have government grant them a gift of Intel’s customers. But they do have a right to give consumers a better deal than Intel. The time and energy they are spending in Washington are time and energy not spent innovating.
We’d be better off prosecuting the DOJ and the FTC for colluding against free enterprise.
About the Author
Ryan Young is Fellow in Regulatory Studies at the Competitive Enterprise Institute.
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Pingback| 12.9.09 @ 7:25AM
The Chips Are Down at Intel – Spectator.org | My Discount Computers links to this page. Here’s an excerpt:
SteveMo| 12.9.09 @ 9:04AM
AMD had a better chip and Intel, using its dominant position, paid customers to NOT use AMD's chips. This is antitrust!
AMD has patents for technology that Intel uses, via its cross-licensing agreements. AMD is leading in innovation, not Intel.
Intel has been found guilty of ILLEGAL anti-competitive behavior in Korea, the European Union, and Japan, while the US has sat on its ass doing nothing. You want more of that?
Intel paid AMD 1.25 billion dollars to keep AMD from testifying in the US's case. Odd behavior from an innovator with no illegal activities.
You certainly have an interesting take on this situation. Cash any Intel checks lately?
herb williams| 12.9.09 @ 11:24AM
AMD is in financial distress because they failed to innovate. They didn’t keep up with Intel Core products, their Barcelona, which has been called various names like Flopaloma, did not live up to AMD's exaggerated promises. They also overpaid for ATI incurring debt they can’t pay off and as a result had to spin their German fabs to oil rich Abu Dhabi that has plans to become a world leader in technology and eventually build fabs in Abu Dhabi sand. Today Abu Dhabi is building a fab in New York and also getting millions in subsidies. Hector Ruiz, the former now disgraced AMD CEO, was a buddy of Chuck Schumer. One can only wonder about what the FTC is up to?
AMD and Intel got together and settled. AMD lawyers were demanding a jury trial and made some outlandish claims about Intel practices and subpoenaed just about everyone of importance in the industry. The lawsuit was said to have accumulated a stack documents 175 miles high. They were supposed to get 10 times the amount that Intel paid to settle. Looks more like a shake down to me.
EU? Korea? Are you really serious? I am more concerned about US companies that have factories in the USA! Intel was not fined in Japan but did acquiesce and did accept Japan’s recommendations in 2005 and nothing changed for AMD, their market share still declined.
The conclusion “We'd be better off prosecuting the DOJ and the FTC for colluding against free enterprise” is right on!
http://www.youtube.com/watch?v=8b67Kk4aGIg
John| 12.11.09 @ 2:42AM
If AMD had inferior products, why did Intel pay 6 Billion dollars to Dell to not let it use AMD products. I would also like to remind you that Intel paid back Dell $325 for every Xeon cpu which Dell had purchsed from Intel for 285$. This extra $40 was for not using AMD Opteron.
Every quarter Dell was short on the revenue and profits, Intel would provide the $ as Marketing Development Funds.
An Atom cpu sells for $45 but an Atom CPU+Chipset+integrated graphics sells for $25. This is one math I have never understood.
Herb Williams| 12.11.09 @ 11:04AM
Intel did not pay Dell $6 billion dollars not to use AMD. You must not have read that the European ombudsman chastised the EU commission in its preposterous $1.4 billion Intel fine for excluding evidence given by a senior Dell executive who stated that Dell did not use AMD chips because of “poor performance”. If Intel did in fact pay Dell $6 billion dollars to screw AMD why did AMD settle the lawsuit on the cheap. They sued Intel had them in court. They proclaimed they had the facts, the so called facts that you believe, in black and white. They must have blown their chance to prove their case, a case that was supposed to set legal precedents? Fact is that after the settlement Intel will continue to offer discounts and nothing much has changed which is good for the consumer and AMD will still have to compete on merit. One would hope that AMD will live up to the terms of their settlement agreement with Intel and simply shut up for a while!
Herb Williams| 12.11.09 @ 4:59PM
Why do you keep ignoring that AMD entered a prolonged lawsuit in a Federal court in June 2005 that has involved all of the industry with depositions and documents that are said to be a stack 137 miles high covering the same accusations you are making and on November 11th signed a settlement agreement with Intel and nothing in the settlement agreement will prohibit Intel from offering “Retroactive Discounts, Accused Bid Bucket discounts and/or End User Discounts”. The charges that Intel paid Dell not to buy AMD processors began with AMD’s former CEO Hector Ruiz who complained to governments all around the world that have self serving interest, especially so with the EU Commission, and its investigation of Intel which itself has been criticized by the EU Ombudsman. As you probably know, Ruiz has recently been disgraced because of his involvement in the release of “insider information”. The EU is run by bureaucrats and its investigation of Intel is obviously flawed; I am surprised you keep defending them. The significant question that many people are asking is whether or not the current administration will follow the EU footprints. Like many Americans, I pray it doesn’t happen.
Matthew Fritch| 12.10.09 @ 8:59AM
AMD used to have the better chip. With the invent of the Core i7 Intel is blowing the doors off of AMD. I have both an AMD Phenom Quad Core and an Intel Corei7 in two seperate computers. I can tell you the Corei7 is far superior. In all the different test areas you can run the Corei7 out performs the AMD by at least 4 times over and in some cases as much as 10 times over. This increased processing has allowed me to multitask like never before.
JohnD| 12.9.09 @ 9:14AM
This is an interesting argument, the juxtaposition of the article's position and SteveMo's point: Anti-Trust law as thwarting the marketpalce, or as a legitimate check on monopoly market-power.
As an attorney schooled in anti-trust and IP law, and also as a child who grew up in a home with a father who lamented his computer company employer's fight against the mighty IBM, I have seen both sides of this issue. I think to some extent, the FTC has been lax in using its Hart-Scott-Rodino powers in preventing mergers that result in market power (see Oil mergers on the 1990s). Any lawyer with a brain knows that the magic words "failure to merge will result in job losses and layoffs" in their HSR filings will bulldoze their proposed merger through the FTC approval process.
At the same time, brilliant innovations by companies like MicroSoft can enhance the quality of life for many, and gain doiminance in the marketplace for the innovator (this might be a bad example). The losers often resort to the courts to snatch judicial victory from the jaws of marketplace defeat.
The bright-line rule hinges on conduct; it is not illegal to gain a monopoly through innovation and "building a better mousetrap; however it is illegal to "monopolize," by using your market power to stifle competition. This is a fact-driven distinction, and one the courts often fail to properly adjudicate.
Just my two cents.
Pingback| 12.9.09 @ 9:48AM
Antitrust as Corporate Welfare for Aggrieved Competitors | OpenMarket.org links to this page. Here’s an excerpt:
Ken (Old Texican)| 12.9.09 @ 9:48AM
Thanks John D
You said it better than I could.
JohnD| 12.9.09 @ 10:11AM
Thanks, Old Texican. Considering the fact that I love reading your posts as well, your comment means a lot to me.
Pingback| 12.9.09 @ 9:50AM
Antitrust as Corporate Welfare for Aggrieved Competitors « Inertia Wins! links to this page. Here’s an excerpt:
Pingback| 12.9.09 @ 10:44AM
Twitter Trackbacks for The American Spectator : The Chips Are Down at Intel [spectat links to this page. Here’s an excerpt:
Pingback| 12.9.09 @ 11:30AM
The American Spectator : The Chips Are Down at Intel American Me links to this page. Here’s an excerpt:
L. Ross| 12.9.09 @ 12:00PM
I don't understand what they are talking about as far as a monopoly goes. I have built/purchased about 12 or 15 computers in the last 15 years, and all but two were not Intel machines. I can get an AMD machine that runs great and costs less all day long. Doesn't seem like a monopoly to me. Just 'cause AMD isn't as big as Intel doesn't mean they don't keep Intel in line. If Intel tried a significant price hike, AMD sales would explode. I'd say what we have is working well.
Gjh| 12.9.09 @ 12:15PM
"The agency [FTC] should recognize that Intel doesn't call the shots in the microprocessor market. Consumers do."
No we don't. Rewind the clock to 2004 when AMD had a far superior server chip to Intel. Back then manufacturers could not freely purchase and market AMD servers to consumers. they were being artificially limited by Intel. This is a fact. Talk to anyone at a major server manufacturer.
The cost to small businesses where innovation thrives was massive. We could not get many affordable choices for 64-bit computing back then. Without AMD it would have been a complete disaster as many companies were building technology that was only possible because of AMD's 64-bit architecture and performance.
Intel's evil plan was to push super expensive Itanium chips for servers. The existence of AMD forced Intel's hand to develop affordable 64-bit technology which everyone benefits from today. The result of which is that Itanium is now on life support.
What Intel did a few years ago was as evil as it gets in business. They should pay.
Pingback| 12.9.09 @ 12:20PM
Twin Size 3 Star Allergen Free Down Comforter | Warmest Down Comforters links to this page. Here’s an excerpt:
Pingback| 12.9.09 @ 2:08PM
The American Spectator : The Chips Are Down at Intel | High technology information links to this page. Here’s an excerpt:
Len| 12.9.09 @ 4:55PM
Maybe someday, "We'd be better off prosecuting the DOJ and the FTC for colluding against free enterprise. " Considering that on Aug. 18th of the federal convention it was proposed and REJECTED to give the federal government authority over business, we may one day, if the people ever decide to reassert their rights, be able to prosecute these agencies for their continued extra-legal actions. Folks, the US constitution grants the federal government authority to regulate COMMERCE...AMONG THE STATES, not regulate business. This grant of power was to establish an essential free trade zone so that all the states could prosper, not one having the advantage over others by such acts as port charges, or levies for moving goods through a state. The framers specifically put forward "to grant charters of incorporation for the public good" . This power was rejected and left to the states, thus the 10th amendment says that the federal government does have this authority.
Well, unless and until the people refuse to tolerate these continual usurpations it will go on, for those who love power and continue to grow the mechanisms whereby the tentacles of the federal government become stronger and stronger will not willingly let such power go. To do so would diminish them, and they must wield power in order to have significance. This is tyranny ever grows.
Pingback| 12.9.09 @ 9:38PM
The American Spectator : The Chips Are Down at Intel ReSeller Me links to this page. Here’s an excerpt:
mgm| 12.9.09 @ 11:32PM
In the classic cases of the FTC and Antitrust Division, bigness is per se intent to monopolize: IBM, Alcoa, Standard Oil, ATT. Microsoft talked about avoiding monopoly and then went right back to work. I think we all want to see what happens to Intel.
Danster| 12.10.09 @ 1:38AM
AMD is and also ran company with and ok product. Intel has just flat out been better. But this is the new age of Obamanomics so we must destroy the winners and prop up the losers.
John| 12.11.09 @ 2:54AM
Danster, what is your idea of a winner. Somebody who has a lot of money and can crush other companies who know how to innovate.
Intel is a nothing but a 400 pound gorilla with deep pockets. Will all the money and intelligence, they have not succeeded in anything other than CPUs. They could not create a parallel computing chip (was it larrabee or laterbee or laughabee) with 10000 intelligent people and 2 Billion $.
They can only succeed by crushing other companies and their innovation and pushing their garbage products to the consumers with the power of their money. What did they do to AMD despite AMD had the best server cpu. Transmeta is another wonderful example. I knew a friend who worked for Transmeta. They got a deal from HP which got cancelled because Intel gave them 350 million $ for not using Transmeta. Eventually Intel paid Transmeta 250 million $ to bring an end to the court cases.
Unconciously, we all want to be on the winning side and Intel is the winner today but we will see for how long.
Ray| 12.11.09 @ 11:14AM
The FTC is wrong about their conclusions that Intel's marketing is harming consumers, which is the idea behind anti-trust cases. The consumers, and this is the part that drives the AMD sycophants batty, DON"T CARE whether their PC's carry Intel cores, AMD cores, or any other manufactures "computer chips," as long as their PC works to their expectations. As long as the consumers are satisfied, and to the most part they are, why should the FTC care who's chips are being used?
BTW, I used both Intell chips and AMD chips in home pc's and I haven't seen much difference between the two, so I don't care about what other people feel is the "best" chip. When it comes to every-day use, there is no difference. And I've been working with PC's since the 80's so I know what I'm talking about. As a matter of fact, I used to work for Compaq in technical support.
Pingback| 12.11.09 @ 12:07PM
The Chips Are Down at Intel – Spectator.org | The Cell Phone Deals links to this page. Here’s an excerpt:
Richard Baker| 12.12.09 @ 2:09PM
This is the same picking of winners and losers that has made every country to engage in this stupidity less able to compete in the "Global" market. A bunch of damned bureaucrats who know little or nothing about their "selective interests" are no more different than the USSR being unable to feed their citizens after yet another "bad harvest. Capitalism is the ONLY system that has been able to create abundance beyond all imagining and not deprivation and lack. It's meant to be a messy system as the winners and losers are created by those who will or won't meet the customer needs/wants. The idiots in this country who want "controlled capitalism" live in a fantasy world and who consciously ignore captialism's successes because of the daydream into nightmare called Utopianism. Companies SHOULD fail when they don't provide what the people want. Government bailouts, as recently practiced, prop up the weak sisters who need to die and be re-organized. No company is too big to fail. If AMD and Intel's other competitors can't make it then they too need to die.
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