FTC opens formal probe of Intel chip business

[June 07, 2008]  SAN JOSE, Calif. (AP) -- Escalating the world's largest computer chip maker's legal woes, the Federal Trade Commission has opened a formal probe into Intel Corp.'s sales tactics, a victory for its much smaller rival, Advanced Micro Devices Inc.

Intel disclosed Friday that it has received a subpoena from the FTC for records about Intel's microprocessor sales, which dominate the world market with a roughly 80 percent share.

The FTC's two-year investigation had been considered "informal" until that point, and Intel, which is already fighting antitrust charges in the European Union and was fined this week by antitrust regulators in South Korea, said it had been cooperating.

By opening a formal investigation, Intel said, the FTC will be able to get access to documents revealing Intel's communications with certain customers - documents Intel couldn't voluntarily provide because of a protective order that is part of a sweeping antitrust lawsuit AMD filed in 2005 that isn't expected to go to trial until 2010.

"From our perspective, it's not a surprising event nor is there any really substantive change in the relationship we've had with the FTC," Bruce Sewell, Intel's general counsel, said in an interview.

The FTC's intensifying look at Intel's business practices is a result of AMD's long-running campaign to convince antitrust regulators around the world that its business has been hurt by Intel's aggressive tactics. AMD also said Friday that it received a subpoena this week from the FTC - though the company said it is not a target of the investigation.

The two companies have been fighting for years over what AMD claims is Intel's intimidation of computer makers into striking exclusive deals for the chips they use in their new machines.

AMD claims the rebates and financial incentives Intel offers to those companies for buying more Intel chips are designed to prevent AMD from gaining market share - and that Intel threatens those manufacturers that it will retaliate if they introduce models based on AMD's chips.

AMD argues that Intel's volume discounts are sometimes so steep that AMD can't cut its own prices enough to compete without losing money on the sales.

Intel has repeatedly denied breaking any laws. It said Friday that the sharp drop in microprocessor prices over the past seven years shows that the "evidence that this industry is fiercely competitive and working is compelling."

In an interview last week with The Associated Press, before the company received the subpoena, Intel Chief Executive Paul Otellini noted that Intel has been investigated by the FTC and the Department of Justice before, and he said he stands by the company's actions.

"I think there's nothing we've done that warrants further investigation by the U.S. government," Otellini said.

Should the FTC find Intel violated federal law, Intel could face severe fines, and the way the world's computer chips are bought and sold could change.

AMD said the probe helps it hold Intel accountable for sales strategies that it argues have hurt AMD's business and technology consumers.

"Intel must now answer to the Federal Trade Commission, which is the appropriate way to determine the impact of Intel practices on U.S. consumers and technology businesses," Tom McCoy, AMD's executive vice president and chief administrative officer, said in a statement. "In every country around the world where Intel's business practices have been investigated, including the decision by South Korea this week, antitrust regulators have taken action."

Another major legal headache for Intel is the lawsuit AMD filed against it in U.S. District Court in Delaware in 2005 - a case that could mean billions of dollars in damages if AMD wins. The parties are now exchanging documents in the "discovery" phase of that case.

AMD's complaints have also triggered antitrust investigations in several countries outside their home U.S. market as well.

The European Union has accused Intel of paying manufacturers to delay or cancel product lines using AMD chips and selling the manufacturers its own chips below the average cost of producing them.

And on Thursday, Intel was slapped with a $25.4 million fine by the Korea Fair Trade Commission, which accused the semiconductor giant of using hefty rebates to convince Samsung Electronics Co. and other South Korean computer makers to not use central processing units, or CPUs, manufactured by AMD.

Intel shares fell 97 cents, or 4.06 percent, to close at $22.90 on Friday. AMD shares fell 35 cents, or 4.5 percent, to close at $7.43.

[Associated Press; By JORDAN ROBERTSON]

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