Last week, Intel, the microprocessor manufacturer fell under fire for possibly violating monopoly laws and subsequently announced that it would settle with long-time rival AMD by paying them $1.25 billion dollars. The legal battle stems from Intel’s business practice of paying for consumer rebates on computer purchases in exchange for the computer company’s use of Intel microprocessors. By offering the consumer huge rebates, Intel was able to capture 80% of the market, therefore the company was considered to unfairly bar AMD from a truly competitive market. The terms of the settlement state that Intel will cooperate with AMD to make sure that they are never unfairly barred from the market again by holding quarterly meetings on practices and cross-licensing their products to give AMD greater freedom to produce their chips at different factories worldwide. Intel states, “We have never wavered in our position that Intel did nothing outside the law,” said Intel’s chief executive, Paul S. Otellini. “It made sense to step back and find a way to settle this.” The legal battle, that has been going on since the 1980s, was brought to a head when Attorney General Andrew Cuomo filed antitrust charges against Intel in early November 2009. This recent settlement between AMD and Intel does not end their dispute, as both the European Union and New York state governments will still pursue Intel for monopolistic practices.
However, this settlement is good for two reasons: one, it gives AMD a stronger chance of coming back and truly becoming a competitor to Intel. And two, the money from this lawsuit is actually going to AMD rather than the bureaucratic black hole of the NY state government, which will be the result of the court case. On the other hand, the settlement is bad because it’s not really ending any legal problems considering that Intel is still going to court to face the NY state government in this antitrust law suit. The general consensus is that Intel will be found in violation of the US antitrust laws and be forced to pay more huge fines. This raises the question of whether the microprocessor industry will be set back a few years for consumers when in comes to innovation and low prices, without its lead-off batter Intel, and will AMD be able to step up to the plate?
In my most recent story about the AMD v. Intel legal drama, I questioned whether or not government intervention was the best choice in this case. With Intel offering consumers huge customer rebates and regular innovation, is it timely for the government to intervene? Why now? Also, will penalizing Intel result in a less innovative and more expensive microprocessor market? The response I got was astounding. Most people agreed that even if Intel’s practices are benefiting the consumer, the government should intervene if they believe that the law is being broken. Others argued that if AMD is wiped out all together, then Intel’s low prices and innovation would surely not survive, making it an obligation for the government intervention. People even argued that AMD is in fact a superior chip and that I was crazy for stating that Intel’s chips are better.
What this debate comes down to is opinion. Some laissez-faire economists believe that government should not intervene in cases like these and that in can in fact impede innovation by penalizing companies like Intel. On the other hand, if the government doesn’t penalize Intel, will they continue to dominate the market share and wipe out AMD? Probably. And we all agree that this is a bad thing because without AMD as a competitor, there is a good chance that Intel wouldn’t continue to offer lower prices and better innovation. Competition is generally a good thing. When it comes to which chip is truly superior, well, I think there will always be opinions on both sides, but generally benchmarks speak the truth. The point is that there is a product cycle going on here, where AMD and Intel continually come out with improved technology. This innovation is prompted by the fact that there is competition. So let’s give AMD the chance to prove themselves as true competitors by giving them some money. The question that remains is whether or not this $1.25 billion will be enough for AMD to turn around their current fortune. In an attempt to do just that, AMD announced on November 12th two new processors geared towards the server and mobile sectors. With Intel still dominating 80% of the market, could these new technologies be enough to put AMD back at the forefront?
The other problem we face is whether or not Intel will be able to bounce back after the seriously large sums of money they will potentially have to pay in this antitrust law suit. Many argue that these huge legal suits will deter other governments or organizations from taking action against the company because no one really wants to see Intel go down. For example, although the Federal Trade Commission normally files charges immediately after the state does in these antitrust cases, they have yet to file charges. Regardless of whether Intel faces further prosecution, one thing is clear: they will probably incur even more penalties when the case goes to court in the spring. Is Intel strong enough to thrive despite these huge monetary penalties, or will the microprocessor market be set back a few years without innovative leader Intel? Can AMD step in as the most innovative and low priced chip manufacturer? Only time will tell.