Intel's Anti-Trust Woes

Intel’s (INTC) anti-trust problems are all over the papers recently. In South Korea, anti-trust regulators have just fined Intel $25.5 million for anti-competitive practices (a judgement that Intel will appeal). In Europe, the anti-trust regulators are expected to conclude their investigations and issue a judgement soon. And in the US, the FTC has just formally opened an investigation into Intel’s business practices, after sitting on the anti-trust case filed by AMD (AMD) back in 2005 for more than 2 years. Despite losing money hand over fist recently, AMD has not relented on its strategy of harassing Intel legally. AMD accuses Intel of selling its chips below cost to major PC manufacturers in order to induce them to boycott AMD’s products; Intel claims that it offered legitimate volume discounts to major PC manufacturers and have never sold its chips below cost. While offering inducements to customers to boycott a competitor’s products is a legally gray area, selling products below cost to gain market share is illegal in most countries, and the cases will probably turn on this last point.

I have previously written about Intel’s near-monopoly position as a long-term structural strength of the company that will allow it to earn returns above the cost of capital for a long time to come. Apparently, the price of this monopoly position is to be considered “guilty until proven innocent” by the government. While it is likely that more fines will be levied against Intel in the future, it is unlikely that this will dislodge Intel from its monopoly position. Microsoft (MSFT) had numerous anti-trust fines levied against it without affecting its market share. Anti-trust commissions are answerable to consumers, and are aware that consumers have been the chief beneficiaries in the recent Intel attempt to drive down AMD’s market share. Any large fine which causes Intel to retrench from the market, or attempts to force Intel to up its product prices, is likely to be viewed very dimly by the public.