RSSAMD's War with Intel Becomes a Street Brawl
By Scott M. Fulton, III | Published August 3, 2007, 7:21 PM
The war between Intel and AMD this week became almost entirely rhetorical, following the European Commission's action last week, charging Intel with abuse of its dominant power status on that continent. While US antitrust law holds companies to a higher standard of conduct once they have attained monopoly power through non-illegal means, EU law sets the bar somewhat lower, where the test is dominant power.
But just what is dominant power, legally speaking? A Wall Street Journal editorial last Tuesday raised the question. It's easy to call Intel's 80% market share there "dominant;" but the article asked, why should a company expect to compete its little heart out using any means necessary, until it reaches 80% or some such point, after which time it can no longer be allowed to compete the same way?
"This leaves companies in the absurd position of being free to compete as hard as possible until they reach a certain market share - at which point their hitherto legal behavior becomes unlawful."
That got AMD's blood boiling. In a response statement, AMD's Executive Vice President for Legal Affairs Thomas McCoy said, "Here's where the history of American antitrust law comes in. In the 2004 Trinko decision, Justice Scalia made a careful distinction: Mere monopoly status is not illegal. But the use of anticompetitive conduct to gain or to maintain a monopoly is illegal, because such practices block the dynamic potential of competition.
This is the distinction employed by the European authorities in their statement of objections against Intel. They did not base their case merely on the size and success of Intel. Rather, the authorities concluded that Intel waged a sustained campaign to leverage its monopoly status to coerce computer makers into boycotting AMD.
"Thus, as the European Commission explained, Intel's conduct is 'bad for competition and consumers,"' McCoy continued. "And that's exactly the kind of conclusion that justified the century of landmark U.S. antitrust decisions spanning the decades from Standard Oil, through Alcoa and AT&T, to Microsoft."
It's important to note here that the European Commission has not actually reached a conclusion - not in the legal sense - about Intel's conduct. It can only reach a conclusion after it has given Intel a chance to make its case heard at an oral hearing, which Intel has indicated it wishes to do.
Equally important is the fact that the EC, time and again with various antitrust and competitiveness cases, has chosen to distinguish itself from US antitrust law by saying it does not borrow EU statutes from US code. Much of the EC's incentive for pursuing Microsoft over the past few years is believed to have been sparked by that company's settlement with the US Justice Dept., after a district court judgment that would have seen the company broken in two, fell apart.
But AMD's rhetoric didn't end there this week. Yesterday, the company released what it claimed to be an economic study concluding that Intel "extracted monopoly profits" from the sale of microprocessors worldwide, during the ten-year period between 1996 and 2006, estimated at $60 billion.
AMD released a summary of a report from Dr. Michael Williams of ERS Group, which includes the formula for how the consulting economics firm arrived at a $60 million residual figure. Using publicly available data, the firm calculated that Intel reaped $141.8 billion in profits during the 10-year period in question. It then tries to separate the profits attributable to financing from those attributable to sales.
First, the cost of capital is subtracted. This is the rate of return on profits that are attributable to appreciation of capital, and is the minimum acceptable rate that shareholders would require for them to say they're satisfied, or that their investment is breaking even. Again, using publicly available data, the firm determined cost of capital at $54.2 billion.
What remains is economic profit, also known as "economic value added." This is the residual amount of earnings when investments reap more than the cost of capital, a kind of necessary surplus for a successful company. This is what a company earns when it's doing better than "just getting by." By subtraction, Intel's 10-year EVA is calculated at $87.7 billion. The firm points out that's a 16% rate of economic return, in an environment where the standard rate for publicly held companies is often 1%.
Here is where the careful calculation starts to show signs of fuzz. Next, the firm makes an assumption that of that remaining EVA, $27.3 billion - about 19% - is attributable to what it calls "portion of economic profits attributed to assumed advantages," which is also called later "legitimate advantages." It then registers this portion as 5% of its economic return. Based on the numbers given, that's obviously wrong. Nonetheless, the $27.3 billion is subtracted from the EVA, resulting in a $60.4 billion figure attributable to "monopoly profits."
The theory here being, whatever a company earns over and above what investors would expect for it to earn, plus or minus something or rather, must be attributable to that company being a monopoly. The firm then went on to project that if Intel were no longer allowed to earn this over-and-above amount, by 2011, consumers would each pay about $15 less for microprocessors.
This is assuming someone is capable of enacting a law that caps a company's profits at plus-or-minus-something-or-rather over and above its cost of capital - which could be about as unprecedented as the assumption that all windfall profits are monopolistic in nature.
"Intel's monopoly profits of $60 billion directly contradict Intel's claim that its business practices have resulted in lower prices," Thomas McCoy stated anyway yesterday. "In fact this study shows that billions of dollars have moved straight from consumers' pockets to Intel's monopoly coffers."
Whether the aforementioned, supposedly Nobel prize-winning, formula unveiled yesterday has any impact on the EC's decision making has yet to be seen. However, perhaps it can be suggested that all those sources yesterday and today who ran the $60 billion figure without first checking the math, should perhaps be given an AMD-based computer to help them out.
can't we all just get alone and by VIA cpu's? :P
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|Taped-up glasses, pocket protectors. I get a horrible vision from the headline. UFC for nerds.
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|I think a lot of people are confusing success with the way it is achieved. There is nothing wrong in having success and earning a lot of money. The issue is in the way you achieve it. If it's with wrongdoings punished by law then is fair you pay for it. And most of the times the pay is low because they already did the damage and the fine wouldn't fix that.
Let's see. INTEL is found guilty, they pay a fine, but the fact that we have less AMD exposure and because of that they hadn't the money enough to evolve isn't fixed by that. The penalty system should be changed. I would apply a patent portfolio switch penalty. That will compensate better the damaged party.
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|I really do not get all of this. Nearly every mile within the US is a Wal-Mart store but I haven't heard of these ridiculous cases going between Wal-Mart, Target, K-Mart, and etc. To me this is business. I can't stand Wal-Mart because they have 40 checkouts and only 3 are always open causing people to wait in line for 30mins+ to checkout....the reason I try to shop anywhere but there.
Plus, I work in the Wholesale Plumbing industry and Kohler will not allow their stocking wholesalers to sell TOTO. What is the difference? I mean this type of stuff goes on in every business.
Maybe I'm just missing the whole point?
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|Nearly every mile within the US is a Wal-Mart store but I haven't heard of these ridiculous cases going between Wal-Mart, Target, K-Mart, and etc. To me this is business.
That's because there's a Wal-Mart, K-Mart, and Target on adjacent corners. If it were *only* Wal-mart, we'd have a problem (well, a bigger one).
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|I hesitate to even speak up on this, but..what the heck.
Intel, at this microsecond in time, has a considerable performance edge and roughly equal price-to-performance ratios with most of AMD's offerings. This could change within a week for two..thats how volatile the chip business is. Some of AMD's most recent pains are clearly self-inflicted and Intel simply took full advantage of these mistakes. BUT - its pretty clear from the evidence that over the past decade Intel, just like Microsoft, tried to strong arm more than a few companies of various sizes into not using competing products. Many of those companies still found ways to sell AMD while avoiding the brunt of Intel's wrath, but the fact remains that monopolistic wrongdoing occurred. In the Western world this is nearly always illegal no matter what flag you salute. If Intel is guilty, they should pay the price and learn from their mistakes. If they don't they'll be paying huge antitrust 'taxes' to various authorities every few years. The last thing Intel wants is be hemorrhaging cash while being forced to let the AMDs of the world catch back up with them technologically. Once the various courts involved really get traction on this thing, I predict a lot of back-room deals will get Intel off the hook in fairly short order. If AMD/ATI have any sense they'll use this brief window to regain the ground they've lost and it'll be a horse race again. Now, as to the anti-American sentiment that may be involved...I mean NO offense to any non-Americans, but virtually every poll by European media and nearly every post I've read over the past two years shows a clear disdain for all things American, largely due to our current foreign policy. I suppose this could all be politically motivated spin by the European press, but nothing I've read anywhere seems to suggest that. If European Union courts are anything like ours, then I have to believe prevailing opinions color the judgment of many, if not most judiciaries there.
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|EU needs to leave US companies alone. It's not Intel's fault that people like their processor NOBODY FORCED me to get an Intel CPU. In fact I have had AMD, Cirix, and many other types of CPU's in my pc's that I have built but I have always preffered Intel for their performance. You get what you pay for.
EU get a life and focus on your internal corruption issues. I bet AMD gave the EU chief's some $$$ to slander Intel and others.
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|Hmmm, interesting .... :)
On Aug 4, 2007 at 8:58 PM you wrote:
"Heck my pc is AMD 3400+"
And then on Aug 4, 2007 at 8:59 PM (i.e. ONE minute later) you wrote:
"NOBODY FORCED me to get an Intel CPU"
I'm sure you'll come up with all sorts of excellent justifications for your statements .... :D
I'm glad too that you've always "preffered" Intel's CPUs, but it's actually spelled "preferred" (being the resident nitpicker here, I just couldn't let you go on that one, now, could I? ... :P )
Regarding your phrase "You get what you pay for", I beg to disagree. Ever heard of a thing called "price/Performance ratio"? Hmmm, didn't think so ... Go have a look at good ol' Tom's site: http://www23.tomshardwar...odel2=921&chart=444
I'm almost done with you ... almost :)
Then you say "EU get a life and focus on your internal corruption issues" ... Because, as everyone knows, there's hardly any corruption in the USA (in case anyone cares to check out some serious surveys: http://www.transparency....urveys_indices/cpi/2006)
Oh, well, that should do for now ...
(Yes, I know it's actually Cyrix and not Cirix, but I thought it was a little too much for him ... :D )
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|I don't know what's sadder, the hypocrite or the bigot.
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|LOL .... care to state which one of the two would I be? :) (my guess would be the bigot, but you never know ...)
I forgot to mention in my previous comment one little piece of information that could now prove relevant to counter your unfounded brickbat: I'M NEITHER AMERICAN NOR EUROPEAN
So, for the record, there you have it :)
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|'M NEITHER AMERICAN NOR EUROPEAN
I'll bite:
Martian?
Centauri?
Plutonite? (Plutonian? I always get confused on that one, they can never make up their minds...)
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|We've always called ourselves Plutonians ... I don't understand these youngsters who like to be called Plutonites nowadays ... tsss ...
P.S.: and we ARE a PLANET!!! You hear me ?!?!?!
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|Two words:
Big Asteroid.
Don't fret, the big rock ain't much better. :p
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|I'm a AMD fanboy, but AMD should shut the ph*** up and just design a faster processor. Say what you will about Intel's business practice, but the fact is that they have faster CPU's. That's why Intel's on top, plain and simple.
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|"The theory here being, whatever a company earns over and above what investors would expect for it to earn, plus or minus something or rather, must be attributable to that company being a monopoly. The firm then went on to project that if Intel were no longer allowed to earn this over-and-above amount, by 2011, consumers would each pay about $15 less for microprocessors. "
What kind of psycho-babble BS is this? As a manufacturer you charge whatever price the market will bare regardless of the cost of manufacture. If consumers do not like the price they buy something else from another manufacturer...
I am getting tired of people targeting companies for effectively working the market with strategic prices that consumers and or value-added resellers (like Dell, HP etc.) are willing to pay.
Now, if Intel crossed a line with improper advertising campaigns that slandered or defamed AMD, or caused value-added resellers to use Intel over AMD via illicit means then that is indeed a problem and they should be investigated and punished for it (This is probably the angle the EU is working - we as Americans often times forget that other countries do not have the same rules and or laws as we do - and as the old saying goes..'When in Rome...' - meaning we play by the laws of the realm.).
But analyzing profits and saying the reporting is inaccurate because the public feels your a monopoly is ridiculous - numbers are numbers and no matter how you spin them they are still the same. Intel is a publicly held company and as such has to post all profits and costs to its shareholders - meaning that even if they put a creative spin on how the numbers are presented the numbers themselves remain the same...(granted the majority of people holding shares in these kinds of companies are clueless about actualy understanding these numbers - it does not negate the fact that they are indeed available should someone choose to dispute the reports given to them - if I tell you to jump off of a cliff because the numbers say it is to your advantage would you do it?).
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|AMD makes a great product. They should be given an equal chance to compete.
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|How are they not given equal chance? Heck my pc is AMD 3400+ in this PC it wasn't like I couldn't find it.
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|So let me get this straight, from the sounds of things AMD wants intel to charge less for their CPU's... isn't that the only thing AMD has going for them is their lower price? I mean they run hotter, don't last as long, and have numerous problems with chipsets designed abroad rather then by themselves as with intel cpu's and chipsets... sounds like they're desperate.
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|Dude, you've got to check your facts.
I've still got K6 and K7 Chips that are running just fine. Mind you the computers themselves are sitting in the basement collecting dust, but I could put in a new BIOS battery and boot them up and not have any problems.
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|America does not (yet) rule the world. (thank God)...besides that, not all they do is bad. I wish the EU community would stand up a bit more to correct certain flaws in US behaviour. afterall the USA originated from what is now the EU community. The EU on the other hand also F**** up in other parts of the world. who stands to correct them ? it still is a long way to a unified world community........
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|"the USA originated from what is now the EU community"
No. The USA originated from what is now the United Kingdom. Its laws are based on Athens, Rome and British Common Law. So there is a bit of Greece and Italy there. Some immigrants from other European countries and a little help from the First French Republic. (The French are now on their Fifth Republic.)
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|Intel is guilty.
They threaten, intimidate and bribe you to stop selling AMD products. They can put you out of business if you don't comply because AMD is just not big enough yet.
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|I know its a real shame that HP has been shut down by intel for selling AMD products
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|Dominant power means:
1. not an EU company
2. source of revenue e.g. Microsoft, Intel, Cisco, or esp. any other U.S. company.
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|1. AMD isn't an EU company either.
2. We have many EU companies stablished in the US too, do you think them as dominant? I think not.
3. I think for a company being dominant in his own market is good, but if they cohort and use anticompetitive means to maintain it, then they become a monopoly, and that isn't very good. Don't you think it too?
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|In the last decade Volkswagen went through this in Germany as well. They attempted to sell automobiles for under the cost of manifacturing, and it was not allowed for a company that is dominant in a certain market. As far as I know Volswagen is not a US company.
As you have a very strong claim here as such: Intel is being punished because it is an American company, I am sure you have the EU statistics of let's say, for the last 10 years. How many companies were charged for attempting to setup market monopoly within the EU, how many percent of these companies were American, how much fine did they have to pay, how was much was the net 'income' for the EU out of these court cases?
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|You stupid ass.
This has nothing to do with being an American company.
Dont you understand that Intel sells chips with conditions. Conditions that allow subsidies if they only use Intel chips. There is a whole gamut of allegations against Intel in their business practice that is against EU law.
Get your head out of your a** and you might see the bigger picture.
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|There is an EU saying ....
Never argue with an idiot, they just bring you down to their level and beat you with experience.
Having said that if you actually believe the EU is picking on Intel because they are an American company then you really are foolish.
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|WilliamWeb2 means:
1. Not somebody well-versed in the application of EU competition law.
2. An idiot.
Volkswagen, France Telecom and other EU-based companies have been investigated and fined for violating the EU's antitrust laws.
Actually, who gives a damn what you think? If American companies want to do business within our borders, they follow our rules or end up with a massive fine.
I guess it doesn't matter if Intel was paying retailers so they wouldn't stock machines featuring AMD CPUs...they're American, so idiots like you get pissy whenever the EU tries to do the right thing and actually investigate these abuses.
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|Just like any other nation, or whatever, in the world, EU has every right to enforce their laws as they see fit. Im not sure how it would come as a suprise that Intel has used their position as a "dominant" power for their own gains. I quess i just lack that patriotic insight.
"Next in news. EU's fight against global warming makes U.S. look bad, patriots are outraged."
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|When you have a company that is so big and powerful that they can manipulate the other companies and the market to their product who suffers?..We do the consumer....lower price latest innovations.Just as Microsoft is doing and the auto and oil companies are doing...
This is my opinion. And I believe that I am correct with it.!
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|Hmm your post doesn't really make sense
but I can think of a company that covered both category's
Enron
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|Enron sucked. No disagreement there. WorldCom is another good example of illegal behavior. I seriously doubt that Intel is anywhere near the likes of Enron or WorldCom. Sure, its possible but there is not any evidence I know of. Does the EU state something like "guilty until proven innocent"? What is their legal standard? I am glad the United Kingdom distanced themselves from the EU and its Maastricht Treaty that created the Euro.
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|Like Microshaft?
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|Sounds like you need to pull your own head out of your a** if you can't reply to someone without insulting them.
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|What country doesn't have that saying? Idiots come a dime a dozen.
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|We have them a penny a dozen :)
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|With the comments made I feel it was justified at the time, with hindsight I can see I was a little strong so I take your point. I do feel that AMD is justified in its actions, in that Intel is using presure on manufactures to use its chips and in the EU this is not acceptable. I can see that most Americans would take exception to the EU applying pressure on Intel in a market you can argue it created, but you cant argue that without competition it would hurt the consumer. I like AMD, I hope this works in their favour.
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|Likewise. I'm an American and favor AMD. I hope the EU rips Intel a new one. As a consumer, I like variety and the right to choose. I can't stand when a corporation forces their product down your throat. EA and their American football games, for example; no competition = crappy games. I was pissed the day I heard they bought exclusive rights to the NFL license for 10 years. I always preferred Sega Sports and their NFL 2K games. So thanks to EA and their greed, I can no longer enjoy any new additions to the NFL 2K franchise for at least 10 years.
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|Wow! Galway.
You must have a great currency exchange rate!
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|So the EU has copies of contracts the Intel had OEMs sign that states discounts only for those that use exclusively Intel chips? I hope they do have this kind of proof. Competitors tend to whine when they are losing and tend to make stuff up!
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