Intel sidesteps FTC probe

Analysis

The US Federal Trade Commission (FTC) was supposed to begin its legal case against Intel Tuesday but reached a settlement late Monday, thus denying us the courtroom dramas witnessed in the trial between the Department of Justice (DoJ) and Microsoft. The FTC had based its case on the proposition that Intel effectively holds a monopoly on the lucrative microprocessor industry. But in a move, predicted by

two weeks ago, Intel capitulated to government pressure. The real question now is what happens to Intergraph, which is, as far as we aware, still pursuing its individual anti-trust case against the chip giant. An Intel representative said that as far as the chip giant was concerned, the FTC deal a "win-win" situation. Intel and a smaller bureau, part of the FTC, had settled the dispute, the representative said. "Terms of settlement have been reached," he said. "The agreement [with the bureau] is subject to the agreement of the Federal Trade Commission. Intel is pleased with the terms of the agreement which it feels adequately protects its intellectual property rights." Intel's capitulation, however, is subject to the overall board of the FTC agreeing the case is altered. In its deposition, the FTC made 38 points to justify its allegation of monopolistic practices. A number of star witnesses for and against the US government's complaint were due to be called, including Andrew Grove, Intel's chairman and AMD's Atiq Raza, who formed Nexgen. Intel denied any allegations of impropriety, but stuck to its guns right up until the last moment. Its statement said: "We believe the Federal Trade Commission is mistaken in its interpretation of the law. Intel believes its actions are well within its rights under existing intellectual property and anti trust laws. Intel will work through the administrative process and we believe that ultimately that process will conclude that our behaviour is lawful." The FTC deposition claimed that Intel's market dominance in the microprocessor market is reflected in its own studies, which show that sales of its CPUs account for around 80 per cent of the total sales of general purpose chips for each of the last five years. Entry is difficult, with new entrants requiring substantial capital expenditure. Further, said the FTC, any new entrant would need to spend close to $2 billion creating semiconductor fabrication (fab) plants, with output unlikely to ramp up until nearly five years after. The branding of any new product would also be an obstacle to entry into the microprocessor market, the FTC alleged. As an example of the monopolistic power Intel is alleged to wield, the FTC would have claimed that on "at least" three occasions, Intel suspended relationships with its customers for competitive reasons, injuring their businesses as a result. The three companies are Digital, Intergraph and Compaq. In the first case, said the FTC, Digital sued Intel for an alleged breach of some of its Alpha microprocessor patents when it launched the Pentium Pro. As a result, it is claimed, Intel refused to supply Digital with the information it needed to continue its PC business. The Intergraph allegations are similar. Intergraph, in early 1993, introduced a line of workstations and servers based on the Pentium chip and Microsoft NT. Intergraph had previously used the Clipper chip in its products but in 1996, Intel demanded it be given royalty free licences for this technology. As a result of Intergraph's refusal, Intel cut off Intergraph's access to future technology, the FTC alleges. Intergraph is pursuing its own, separate, anti-trust case against Intel in parallel with the FTC. The third company, Compaq, sued Packard Bell for using what it claimed was patented technology in its PCs. According to the FTC, Intel took Packard Bell's side, and, once more, deprived Compaq of technical information it needed to design future PC systems. However, in the fast moving computer industry, much has changed since then. The case between Digital and Intel was settled two years ago. Digital accepted a large cash settlement from Intel, and in return licensed its Alpha and StrongARM patents to the chip giant. Intel in turn, was obliged to take over the fab facilities of Digital and make Alpha microprocessors. At the time, the FTC ruled that the manufacture of Alpha processors also be thrown open to other parties. Last year, Compaq acquired Digital, and with it the Alpha microprocessor. Its CEO and chairman, Eckhard Pfeiffer, said only a few weeks ago that Compaq is committed to using the Alpha 64-bit chip in its high end server systems, which will compete with Intel's own 64-bit Merced chip, expected next year. Later on this year, Compaq will release "Wildfire" symmetric multiprocessing (SMP) systems based on the Alpha processor. Further, there is now an Alpha consortium, headed by Samsung, which is manufacturing fast microprocessors and is expected to cut prices on these throughout 1999. There is also more competition in the market than there was a few years ago. Last month, a market research company reported that Advanced Micro Systems (AMD) had for the first time beaten Intel in the lucrative sub-$1,000 retail market in the US in supplying chips. AMD also now has an impressive string of mainstream PC manufacturers, including Compaq and IBM, using its K6-II and K6-III microprocessors in its systems. And later on this year, AMD will introduce a slot-based K7 microprocessor, which will share the same motherboards as Alpha processors and will also, eventually be used in high-end servers. Previously, AMD had confined itself to the low end of the microprocessor market. Nevertheless, reports from the US only a few weeks ago suggested that the FTC was considering broadening its case against Intel. The reports claimed that the FTC had requested pricing information from Intel, and was investigating whether it used its vastly greater liquidity to cut prices on entry level systems with which AMD and the other x.86 manufacturers including National Semiconductor Cyrix, Rise and IDT. AMD seems insouciant about whether or not the FTC successfully prosecutes. According to Robert Stead, AMD's Northern European marketing director: "If Intel has been doing something wrong, the FTC will find it out. If Intel hasn't been doing anything wrong, the FTC will find that out too." That might not be enough, however, for Intergraph, or for other industry bodies interested in pursuing an anti-Intel case. For example, networking companies feel Intel has done too well in stealing market shares in the last two years, while third party graphics chip companies think their market share has suffered depredations. Although the Intel-FTC case is altered, it's hard to believe that everything will end here. ®