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EC ruling hits Intel with $1.45B fine, PR nightmare

Posted: 19 May 2009 ?? ?Print Version ?Bookmark and Share

Keywords:Intel antitrust? price fixing? microprocessor?

With $10.6 billion in cash and short-term investments as at the end of Q1, Intel Corp. would seem to have more than ample resources to pay off a $1.45 billion fine levied by the European Commission for actions that violated antitrust rules.

Intel stands to lose more than the fine imposed by the EC, however. With other antitrust agencies at federal and state levels weighing action against the company and the possibility the EC ruling could give it a black eye with end customers, Intel may rue its once infamous refusal to allow top executives to get actively involved in public debates about allegations its sales and discounting practices hurt competition in the microprocessor market.

Intel has dominated its market not only by beating rival Advanced Micro Devices Inc. with great products and manufacturing efficiencies but also because end-customers have come to believe Intel's position that its practices have helped to drive down prices and encourage innovation.

The EU's ruling and the size of the fine impose undercuts that argument. Antitrust authorities in three distinct geographical regions, including Japan and South Korea, have now issued rulings against Intel, thrusting the company into a situation where it must face the perception of guilt in additional investigations now going on in the United States.

Furthermore, Intel, by its own count is facing "at least 82 separate class actions" filed by lawyers on behalf of customers in at least eight U.S. states, including California, Delaware, Idaho, Kansas, Maine, Nebraska, New Mexico and Tennessee.

"These actions generally repeat AMD's allegations and assert various consumer injuries, including that customers in various states have been injured by paying higher prices for computers containing our microprocessors," Intel said in a February annual filing with the U.S. Securities and Exchange Commission.

The class action lawsuit may hold greater danger for Intel than any of the three antitrust rulings already issued against the company. Also, AMD's civil action against Intel in the United States is expected to formally start on Feb. 15, 2010.

The AMD complaint, originally filed in June 2005, charged Intel with "violation of the Sherman Act and the California Business and Professions Code, including, among other things, providing discounts and rebates to our manufacturer and distributor customers conditioned on exclusive or near exclusive dealing that allegedly unfairly interfered with AMD's ability to sell its microprocessors."

The latest EC ruling has the potential to stack public sentiment against Intel and this could be problematic for the company in the long run. The charges on which the EC ruled against Intel were brought by AMD and have been around for quite some time.

While AMD slogged through the judicial and antitrust systems for "justice," and campaigned vigorously through the press for action on its behalf, Intel mainly responded through its lawyers, putting its top executives above the discussion of its practices.

It was probably a major mistake that could cost the company dearly with end-customers.

Handling bad PR
Intel executives were notoriously reluctant to comment on ongoing litigations, antitrust investigations, speculations, rumors and other pesky matters playing out in the court of public opinion.

The impression given by Intel, the world's largest chip vendor by sales, was that the company's management should be above the fray and concentrate instead on beating the stuffing out of the competition with leading-edge products, pricing strategies and manufacturing excellence.

Legal matters, they indicated, should be left to lawyers and the courts, while speculations about developments concerning the company were brushed aside with the stock statement: "We don't comment on rumors."

While Intel's position appears sensible and similar to what prevails at other public and private enterprises, it is working against the company's interest in the case of investigations in several countries and marketing regions into alleged antitrust practices by the chip manufacturer.

As Intel is now discovering, preventing a public relations nightmare and shaping opinions in your favor whether within legal and legislative circles or at OEM and end customers sometimes necessitates trotting out your top executives to speak not just directly to your immediate audiences, including OEM customers, but also to legislators and antitrust investigators.

The company appears to have finally gotten the message. Intel president and CEO Paul Otellini is scheduled to "make a brief statement regarding" the EC's decision and "take questions."

It's about time.

- Bolaji Ojo
EE Times

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