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A World of Probes into Intel

By Cliff Edwards Be careful what you wish for. After Intel (INTC) spent billions over past decade to make its brands one of the best known in the world, it's beginning to look like there's no place the giant chipmaker can escape scrutiny.

The Santa Clara (Calif.) company disclosed in a regulatory filing on Aug. 8 that the South Korean Fair Trade Commission is looking into its rebate and marketing practices, joining similar investigations in Japan and the European Commission. Investigators around the globe are probing claims that Intel has abused its dominant market share in microprocessors to force customers into exclusive contracts that may have illegally shut out rival Advanced Micro Devices (AMD). AMD is suing Intel in the U.S. and Japan (see BW Online, 6/28/05, "AMD Hauls Intel Back Into Court").

For Intel, the question now is how hot can the hot seat get? The increasing international scrutiny could prompt the eerily silent Federal Trade Commission to launch its own investigation. Sources say U.S. investigators have been following the actions taken around the world but haven't yet opened a formal inquiry of their own.

COORDINATED RAIDS. AMD also is trying to get state officials to take an interest in Intel's business practices. The smaller chipmaker has been quietly laying out its case before state regulators who filed antitrust claims against Microsoft (MSFT) years ago. Massachusetts, Texas, New York, and Connecticut spearheaded the initial investigation against Microsoft. It's not clear whether any are considering action against Intel.

Intel says it's complying with a Korean request for documents relating to its practices. The request came in June, just a few weeks before teams of investigators from the European Commission's competition directorate on July 12 carried out a series of coordinated raids across at least four countries on Intel's European offices and those of a half-dozen PC makers and distributors.

In March, Japan's Fair Trade Commission found that Intel violated fair competition laws there by restricting the amount of business its customers could do with AMD. Intel in April accepted the ruling and agreed to change some of its practices but didn't admit to any wrongdoing. Japanese regulators say they'll continue to monitor interactions between Intel and PC makers to ensure compliance.

"FAIR AND LAWFUL." Intel has faced the scrutiny of U.S. regulators before. The FTC closed a three-year investigation into Intel's business practices both in 1993 and in 2000 without taking action. A call for comment to the FTC's Bureau of Competition wasn't returned.

Intel says it hasn't heard of any U.S. probes into its practices. "Twice, once in 1993 and then in 2000, [regulators] found nothing to pursue," says spokesman Chuck Mulloy. "I wouldn't want to speak for them today, other than to say we think our business practices are fair and lawful."

AMD spokesman Dave Kroll declined to comment on the status of any potential FTC investigation. "The FTC has been and is supportive of fair competition in the processor sector and is monitoring the situation closely," Kroll says.

MAKING ITS CASE. Legal pundits say U.S. regulators are unlikely to act anytime soon, despite the increasing pressure Intel faces overseas. Domestic officials, they point out, typically wage battles against monopoly abuse only if they can demonstrate that consumers were harmed by the alleged behavior.

Still, that doesn't mean Intel is safe. AMD's lawyers have been meeting with state regulators to try to convince them to take on the case. Several state agencies could launch their own investigations in the next few months. The states that could be interested in the Intel case include New York, New Jersey, Missouri, and California. AMD plans to share any potential "smoking gun" documents it finds with federal, state and overseas regulators ahead of its own antitrust trial likely next year in Delaware. And it has subpoenaed e-mails between Intel and PC makers.

The European case, however, may come to head long before any of those scenarios. Since European antitrust law gives more consideration to the impact of monopolistic behavior on competitors than U.S. law does, it's widely believed the EC will bring a case against Intel as early as October.

CAUGHT FLATFOOTED. The EC launched its first inquiry into Intel's practices in 2000 at the behest of AMD. The probe heated up again in 2004 after AMD filed another complaint and provided additional evidence of what it says has been a ceaseless campaign to harm its business instead of competing fairly (see BW Online, 7/14/05, "The EU's Assault on Intel").

The trouble couldn't come at a worse time for Intel. The chipmaker has been caught flatfooted by the success of AMD's Opteron server chip in particular and by the growing strength of AMD's desktop and notebook offerings. AMD's elegantly designed dual-core chips and surrounding architecture have become a hit with customers. Server makers Hewlett-Packard (HPQ), Sun (SUNW), and IBM (IBM), among others, increasingly are rolling out new products with AMD inside (see BW Online, 7/25/05, "AMD Ascendant").

Intel remains resolute. Chief Executive Paul Otellini says the chipmaker is confident things will be "resolved favorably to Intel." With so many things piling up against it, though, if Intel execs weren't worried before, they should be now.

Edwards is a correspondent in BusinessWeek's Silicon Valley bureau

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