The European Union vindicated AMD with a fine on competitor Intel Corp. for antitrust violations Wednesday, but the ruling is not likely to change Intel’s dominant position in the microprocessor industry.
The $1.4 billion fine, the largest penalty to be imposed for anti-trust breaches by the EU, also calls for Intel to “cease illegal practices immediately,” however the ruling focuses on chips used in personal computers, a declining market segment.
Intel has faced similar pressures in different markets around the world in the past. Santa Clara, Calif.-based Intel was found guilty of anti-trust violations by Japan in 2005, and Korea in 2008, though those rulings have shown little impact on the company’s dominant position.
Ultimately industry observers say rivals can gain with strong offerings and better prices.
“I don’t think [EU’s decision] is going to have a large impact to Intel at all,” said Doug Freedman, analyst for Broadpoint Amtech. “It’s a small incremental positive for AMD that allows them a little more airtime, but at the end of the day it will fall back on the strength of the products.”
Moving forward, both said their strategies are still centered on innovation. Historically, AMD’s products were arguably better at one point in time, however.
In 2003 the firm released the technically superior Opteron processor to the market, but was met with slow adoption rates. The adoption was so slow, in fact, AMD filed suit claiming that Intel was winning business by abusing its size with unfair practices.
The commission said today the illegal practices, between 2002 and 2007, involved rebates to computer makers such as Acer and Dell and had the effect of pushing out AMD.
Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years. Such a serious and sustained violation of the EU's antitrust rules cannot be tolerated, said Neelie Kroes, EU's Competition Commissioner.
The decision was important to establish a truly competitive market AMD said.
“The power is taken from Intel and put back into the hands of consumers,” explained AMD representative Drew Prairie.
Intel is appealing the EU's decision saying the natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not. It released a statement this morning saying that the Commission ignored significant evidence and said it never sells products below cost.
The appeal is expected to take several years.
Meanwhile, the ruling isn't expected to influence the rivals' competitive positions. As of the first quarter of 2009, Intel controls 78.2 percent of the overall market for x86 processors, while AMD has 20.9 percent of the market, according to Mercury Research.
However, sales of x86 chips are slowing dramatically, declining 9.1 percent in the first quarter from a year ago. As a result, Intel has been more focused on growing the overall market for its chips than in competing fiercely just in the x86 market.
In light of these facts, AMD remains elated on its prospects and its recent legal victory.
“Even in a market that’s not growing, we have a lot of opportunity for growth just by gaining share,” Prairie said.