Commission publishes the embarrassing details of Intel anti-trust ruling

Intel chip. [Copyright: Borb; licence Creative Commons]

Among other details it shows that PC manufacturer Dell was offered rebates to induce it to use Intel, rather than AMD, processors, even though Dell considered AMD’s product was better.

The Commission says Intel’s actions have harmed consumers throughout Europe, by undermining competition, reducing consumer choice and hindering innovation.

Intel abused its dominant position in the x86 CPU market by implementing a series of conditional rebates to computer manufacturers and to a European retailer, and by taking other measures aimed at preventing or delaying the launch of computers based on competing products (so-called “naked restrictions”).

The document published this week gives a blow-by-blow account of the specific cases of these conditional rebates and naked restrictions, details how Intel sought to conceal its practices and how computer manufacturers and Intel itself recognised the growing threat represented by the products of Intel’s main competitor, AMD.

Conditional rebates

So for example, Intel rebates to Dell from December 2002 to December 2005 were conditional on Dell purchasing exclusively Intel CPUs. In an internal Dell presentation of February 2003, it was noted that should the company switch any part of its CPU supplies from Intel to its competitor AMD, Intel’s retaliation, “could be severe and prolonged with impact to all Lines of Business]”.

The ruling includes a redacted version of a February 2004 e-mail on the consequences of the possible purchase by Dell of AMD CPUs, in which a Dell executive wrote that Intel executive were, “prepared for [all-out war]” if Dell “joins the AMD exodus”.

In the case of Hewlett-Packard, Intel rebates from November 2002 to May 2005 were conditional on HP purchasing no less than 95 per cent of its CPU needs for business desktops from Intel. The remaining 5 percent that HP could purchase from AMD was then subject to further restrictive conditions. In a submission to the Commission, HP stated that, “Intel granted the credits subject to the following unwritten requirements: a) that HP should purchase at least 95 percent of its business desktop system from Intel …". By way of example, in an email written in July 2002 during the negotiation of the rebate agreement between HP and Intel, an HP executive wrote, “PLEASE DO NOT… communicate to the regions, your team members or AMD that we are constrained to 5 per cent AMD by pursuing the Intel agreement.”

A similar picture emerges of Intel’s dealings with NEC, Lenovo and Media Saturn Holding, Europe’s largest PC retailer.

Naked restrictions

The naked restrictions uncovered by the Commission included that between November 2002 and May 2005, Intel payments to HP were conditional on HP selling AMD-based business desktops only to small and medium enterprises, only via direct distribution channels (rather than distributors), and on HP postponing the launch of its first AMD-based business desktop in Europe by 6 months.

In an internal September 2004 HP e-mail, an HP executive stated, “You can NOT use the commercial AMD line in the channel in any country, it must be done direct. If you do and we get caught (and we will) the Intel moneys (each month) is gone (they would terminate the deal). The risk is too high.”

Similarly, Intel payments to Acer were conditional on Acer postponing the launch of an AMD-based notebook from September 2003 to January 2004. In a September 2003 email, an Intel executive reported, “Good news just came from [an Acer Senior Executive] that Acer [has] decide[d] to drop AMD K8 [a notebook product] throughout 2003 around the world.” Lenovo was also induced to postpone the launch of AMD-based notebooks from June 2006 to the end of 2006.

Concealment

The Commission found that Intel generally sought to conceal the conditions in its arrangements with PC manufacturers and Media Saturn Holding. For example, the rebate arrangement with Dell was not subject to a written agreement but was concluded orally at various meetings, and while there was a written agreement with HP, the relevant conditions remained unwritten.

In other statements, computer manufacturers and MSH outlined how the various Intel conditions were an important factor in their decisions not to partially switch to, or buy more x86 CPUs from AMD.

AMD’s growing threat

The evidence in the decision indicates the growing threat that AMD’s products represented to Intel, and that Intel’s customers were actively considering switching part of their x86 CPU supplies to AMD.

For example, in an October 2004 email from Dell to Intel, a Dell executive stated that. “AMD is a great threat to our business. Intel is increasingly uncompetitive to AMD which results in Dell being uncompetitive to [Dell competitors]. We have slower, hotter products that cost more across the board in the enterprise with no hope of closing the performance gap for 1-2 years.”

In a submission to the Commission, Dell also stated of AMD’s Opteron processor, “In Dell’s perception this CPU generally performed approximately […] better than the comparable Intel Xeon CPU at the time.”

An internal HP presentation from 2002 stated that AMD’s Athlon PC CPU, “had a unique architecture” and was “more efficient on many tasks”.

The fact that AMD had improved its products is also recognised by Intel itself. For example, in a 2005 submission to the Commission Intel stated, “AMD improved its product offerings dramatically with the introduction of its successful Opteron processor.” This is also confirmed by contemporaneous documents from Intel. For example, in a 2004 internal Intel e-mail, it is stated that, “Opteron is real threat today… Opteron-based single WS [Workstation] benchmarks beat [Intel's] Xeon in all cases.”

The full text of the decision, together with a summary, is now available on the Europa website: http://ec.europa.eu/competition/sectors/ict/intel.html