Wednesday, August 1, 2007

AMD celebrates gift from Brussels

Catching up during a brief vacation, after a busy week of getting ready for the new semester.

Tuesday’s papers had a full page ad from AMD celebrating last Friday’s EC action against Intel. I saw the ad in the Wall Street Journal and the San José Mercury News, but I’d bet it also ran in the NYT, USA Today, and perhaps the Washington Post.

With a letter by CEO Hector Ruiz, the AMD ad trumpets

The European Commission reveals the truth about Intel.

Obviously AMD is grateful for a powerful ally in its bitter rivalry with Intel. AMD has been counting for a long time on antitrust efforts to help its fight, with (among other things) funding of a PBS documentary praising the value of antitrust enforcement.

According to the AMD summary of the European Commission allegations, Intel:
  • Maintained its monopoly by paying substantial rebates to PC manufacturers on the condition that they do little or no business with AMD,
  • Paid manufacturers to delay or cancel the launch of AMD-based products, and,
  • Provided below-cost microprocessors for servers to prevent rival solutions from being chosen by strategic customers.
As with any lobbying or other public policy-oriented message by an interest group, AMD’s characterizations could be charitably construed as a selective presentation of the truth.

It’s not surprising that Intel’s woes sound like the Microsoft case — ongoing investigations and occasional allegations of monopolistic practices. In both cases, the European threat of action seems more severe than in the US. And of course, both tie to the Wintel duopoly.

[Aug 18, 1997]However, as measured by market share Microsoft’s grip on customers over the past decade has been tighter than Intel’s. If anything, Intel’s problem is that it has a richer and more determined rival than Microsoft has had since AOL Netscape threw in the towel. Meanwhile, for the past decade, Apple has pulled its regulatory but not marketplace punches in a textbook case of co-opetition.

It’s also not surprising that those that defend Microsoft also defend Intel, including the very same WSJ that gladly pocketed AMD’s advertising dollars. On the same page that blasted EC attacks on Microsoft in March, an unsigned editorial entitled “Intel in Euro-Land” proclaimed:
Computer chips are getting faster and smaller, and prices are dropping amid fierce competition. So naturally the European Commission thinks this is the ideal time to lodge another antitrust suit against another American technology titan.
There are several problems with the logic of this sentence, but finding them is left to the readers as an exercise.

Still, there are two problems that the WSJ editorial raises that are not so easily dismissed away.

First, the potential sanctions of 10% of Intel’s global revenues would be unconstitutional in a country that had a rule of law. Intel is not headquartered in the EU, and so the EU does not (or should not) have jurisdiction over anything but its operations there. (What would happen if every country in the world decided to fine Intel 10% of global revenues? It would be a great way to print money until Intel went broke.) Sure, an antitrust decision by the EC not to allow a merger in the EU is equivalent to veto power for a global company, but the EC should have no more ability to fine Intel for non-EU operations than it can tax them.

Secondly, while the WSJ is predictably glib in dismissing sanctions over a fierce business rivalry, seriously engaging its arguments does raise a fundamental question: where does normal competition end and anti-competitive behavior begin? The WSJ seems to be in denial that predatory competition exists, but certainly there are historical existence proofs of firms trying to drive out competitors to raise their pricing power. If, as alleged, Intel sold chips below its costs, that is the standard used by the (US) International Trade Commission for sanctioning such competition.

On the other hand, firms are expected to compete for customer loyalty and (legally) maximize shareholder returns. (New York to Paris: we call it capitalism.) Two once-great American innovators — IBM and AT&T — atrophied during the 1960s and 1970s in the face of US government antitrust actions that caused firms to internalize such limits and, in effect, “pull their punches.” Eventually IBM came back, but it looks like AT&T never will. The US (and world) economy would be the poorer if Intel did not continue to invest heavily in fulfilling the 1965 prophecy of Moore’s Law.

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