The European Commission fine against Intel Corp. was $1.5 billion but the issue is not about money for the chip maker. It's about influence.
The antitrust action Wednesday (May 13) by the European Commission—and the potential for the U.S. government to take action in the future—will work to limit Intel's vast influence on the PC market.
The action by the European Commission is specifically aimed at limiting Intel's use of rebates that tie back to specific behaviors by its customers. The EC argues that preventing these rebates will eliminate Intel's ability to influence and shape the market by pushing PC makers toward using Intel chips almost exclusively in place of those made by Advanced Micro Devices.
Therefore the EC intends to have the long-term impact of increasing the options available to consumers by increasing the number of AMD-based computers in the market. Essentially, the EC intends to limit Intel's ability to influence PC makers to use only Intel chips. Consumers, the EC argues, will benefit from the greater diversity of computer models in the market.
Although the EC ruling looks back several years, we believe what matters for Intel is how more strict government oversight will shape its business in the future. The action by the EC—should Intel lose on appeal—and the potential for similar action by the U.S. government would work to reduce Intel's influence over the market.
Technology Business Research (TB) expects this to do more than make it easier for processors from AMD to appear in systems by preventing Intel's ability to utilize rebates. We expect increased oversight to limit Intel's ability to shape the PC market.
Intel uses a number of levers, including rebates—often referred to as MDF or market development funds—as well as processor pricing and platform pricing discounts and its Intel Inside marketing campaign to influence the types of platforms which PC makers bring to market as well as the ways in which those machines are positioned, respectively.
There is no doubt that Intel has been and will continue to be heavily involved in influencing the future direction of the PC market. However, the actual results of the EC ruling remain to be seen.
For example, without the influence of Intel, the netbook market would look far different than it does, today. The market would have seen much greater experimentation with larger-sized screens, for one. Where netbooks have largely been limited to 9-10-inch screens to date, we think that a greater number of 12-14-inch models would have emerged. (Whether or not those models would have been successful is a matter open to debate.)
Instead, Intel has helped PC makers to develop a new class of thin and light full-size notebooks, based on the forthcoming Intel's Consumer Ultra Low Voltage Core processors (dubbed CULV) to occupy the 12-14-inch screen range. To create these machines, Intel has delivered a lower-cost version of its platform for lightweight notebooks. It did so instead of offering its Atom processor, which it has tied to the smaller-sized screens, for these notebooks.
Limiting Intel's practices and even reducing its influence on the market will necessarily lead to an explosion of AMD-based systems overnight. AMD must deliver competitive processors at competitive pricing—an effort it has undertaken with its Puma platform for full-size notebooks as well as its Yukon platform for low-cost, lightweight machines " while also continuing to convince business customers that its processors are the same or better as Intel's.
For AMD, breaking into the business market continues to be a major challenge. Consumers, on the other hand, are quite open to using AMD processors.
John Spooner is an analyst with Technology Business Research.