The Public Policy

The Chips Are Down at Intel

The Federal Trade Commission practices crony capitalism.

By and 12.9.09

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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.

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About the Author

Wayne Crews is Vice President for Policy at the Competitive Enterprise Institute in Washington, D.C.

About the Author

Ryan Young is Fellow in Regulatory Studies at the Competitive Enterprise Institute.