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Intel Could Face Fines for Unfair Pricing Model

By - Source: Tom's Hardware US | B 40 comments

News broke earlier this week that Intel could be facing sizable fines from the European Union in relation to the company’s pricing model.

Reuters this week reports that the European Commission, which has said Intel’s pricing practices were an attempt to drive AMD out of the market, is set to rule on whether or not the company should be fined. It seems the European Union has a big problem with the way Intel has been doing business, in particular rebates to computer makers and retailers.

Intel denies charges related to rebates offered as long as manufacturers agreed to obtain the majority of their processors from Intel as well as paying them to either to delay or cancel the launch of AMD based products. The company maintains that its actions were within legal boundaries.

However, while fines are never pleasant, especially during times when money is tight, the maximum fine would be 10 percent of Intel’s annual revenue. The Reuters report contains something which would cause worse pains for Intel: the possibility that the European Union could impose new rules in order to remedy Intel’s actions. Former Commission official Michael Tscherny hinted at just that and said the European Commission could destroy Intel’s pricing model.

"Will the Commission impose something that would destroy their pricing model, open up the market to competition and new entrants or to AMD? That is what they would be worried about, more than their reputation or anything else," said Tscherny.

Read more on Reuters.

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Top Comments
  • 12 Hide
    hellwig , March 12, 2009 7:27 PM
    A StonerLooking out for the consumer? What they are complaining about is that Intel is making a profit selling processors below the break even point of it's competitor, AMD. How exactly is that looking out for the consumer. The EU in this instance is telling Intel to raise it's prices to shield AMD from real compitition. If AMD were a functioning company, it would not need protectionist' to come to it's rescue. While it is good to have compitition in the marketplace, and thus not allowing Intel to become a monopoly simply because the only other company making X86 chips goes out of business, it does not make it right for them to prop up the price of computer chips which increases the price for the consumer. Even with Intel's HUGE lead in processor capability, they have not slowed down their research and developement, nor have they cut back on the tick-tock release cycle, which tells me that Intel is a play-by-the-rules-and-give-the-customer-the-best-value-they-can company, while also increasing it's value to it's share holders. This is in no way a statement that AMD is not a play-by-the-rules... The EU seems to be the group interested in increasing prices to customers...
    \

    Astoner, what happens when Intel wins and AMD goes under. You think those low low prices are going to stick around?

    Look at Walmart. Sure, they move in with low prices to undercut their competitors, and in big cities, they may drive out mom-and-pops but other big chains stick with them. However, in small areas where there is no competition, Walmart doesn't keep those low prices.

    The ONLY reason to drive out competition is to become the only provider. Once you are the only provider, you set the rules. This is why we have anti-trust legislation here in the U.S. as well as abroad. Look at the old railroad companies, look at the oil companies. Why is gas always the same price regardless of which gas station you buy it from? That's because the oil is controller by OPEC, a cartel. They control the worlds oil supply, and they set prices. Why are diamonds so expensive? Because DeBeers, another cartel, controls the worlds diamond supplies. You want Intel deciding how much you spend on a computer, I think not.

    If you actual think Intel reduced their prices to benefit the consumer, you have no idea how global economics works. Read a damn book sometime.
Other Comments
  • -4 Hide
    hellwig , March 12, 2009 5:51 PM
    Well, Intel did that here in the U.S., why wouldn't they have done it in Europe as well? While I think the EU fines are a little ridiculous, at least they are looking out for the consumer.
  • 1 Hide
    mrubermonkey , March 12, 2009 5:53 PM
    Only more reason to do custom builds or contract someone to do a build for you.
  • 2 Hide
    NuclearShadow , March 12, 2009 5:54 PM
    I really can't see how Intel was doing anything wrong with those rebates as I'm sure retailers are hesitant to stock up on expensive CPU's that may not sell. This at least gives the retailer the ability to feel a little more secure.

    Now if they did indeed make the stipulation to delay or stop the release of AMD products being sold by the retailers and computer manufacturers then they certainly are in the wrong and deserve to be punished. However no one should assume that this is what happened until we actually see some sort of evidence.
  • -2 Hide
    jrivera04 , March 12, 2009 6:18 PM
    Intel may have fudged with its pricing model but the fact still remains that AMD is in its current situation because it let its guard down. When Intel released Conroe AMD was resting on its laurels.

    Then when they released their new chips chips were so buggy the people lost confidence in AMD.

    I am glad that the Phenom II is such a great chip but if it would have been released along side of the Conroe, AMD wouldn't be bleeding cash the way it is.
  • -1 Hide
    A Stoner , March 12, 2009 6:26 PM
    hellwigWhile I think the EU fines are a little ridiculous, at least they are looking out for the consumer.

    Looking out for the consumer? What they are complaining about is that Intel is making a profit selling processors below the break even point of it's competitor, AMD. How exactly is that looking out for the consumer. The EU in this instance is telling Intel to raise it's prices to shield AMD from real compitition. If AMD were a functioning company, it would not need protectionist' to come to it's rescue. While it is good to have compitition in the marketplace, and thus not allowing Intel to become a monopoly simply because the only other company making X86 chips goes out of business, it does not make it right for them to prop up the price of computer chips which increases the price for the consumer. Even with Intel's HUGE lead in processor capability, they have not slowed down their research and developement, nor have they cut back on the tick-tock release cycle, which tells me that Intel is a play-by-the-rules-and-give-the-customer-the-best-value-they-can company, while also increasing it's value to it's share holders. This is in no way a statement that AMD is not a play-by-the-rules... The EU seems to be the group interested in increasing prices to customers...
  • 0 Hide
    tenor77 , March 12, 2009 6:33 PM
    This is capitalism folks. Sorry for the crude analogy, but if you start a cock fight don't be shocked when they go for blood. The nature of the beast is that one will try to win. If you set up the arena and throw both birds in the ring don't kick the one that's ahead because it's doing better. This is coming from a guy using AMD and ATI products for the last decade. No love for Intel here.

    I'm all for competition but the fact remains that I'm sick of people getting bent out of shape when companies in a fight for survival act like it. Especially when it's okay for the smaller companies but not the larger ones. If they didn't do anything that people wouldn't care if AMD did, then drop it EU.
  • -1 Hide
    scarpa , March 12, 2009 6:54 PM
    "AMD, I really hate that you bought ATI. I love ATI and hate AMD. You are never winning the CPU war again."

    AMS will win the war for sure, Intel doesn't know what's coming right around the corner.
  • 1 Hide
    scarpa , March 12, 2009 6:55 PM
    AMD
  • 12 Hide
    hellwig , March 12, 2009 7:27 PM
    A StonerLooking out for the consumer? What they are complaining about is that Intel is making a profit selling processors below the break even point of it's competitor, AMD. How exactly is that looking out for the consumer. The EU in this instance is telling Intel to raise it's prices to shield AMD from real compitition. If AMD were a functioning company, it would not need protectionist' to come to it's rescue. While it is good to have compitition in the marketplace, and thus not allowing Intel to become a monopoly simply because the only other company making X86 chips goes out of business, it does not make it right for them to prop up the price of computer chips which increases the price for the consumer. Even with Intel's HUGE lead in processor capability, they have not slowed down their research and developement, nor have they cut back on the tick-tock release cycle, which tells me that Intel is a play-by-the-rules-and-give-the-customer-the-best-value-they-can company, while also increasing it's value to it's share holders. This is in no way a statement that AMD is not a play-by-the-rules... The EU seems to be the group interested in increasing prices to customers...
    \

    Astoner, what happens when Intel wins and AMD goes under. You think those low low prices are going to stick around?

    Look at Walmart. Sure, they move in with low prices to undercut their competitors, and in big cities, they may drive out mom-and-pops but other big chains stick with them. However, in small areas where there is no competition, Walmart doesn't keep those low prices.

    The ONLY reason to drive out competition is to become the only provider. Once you are the only provider, you set the rules. This is why we have anti-trust legislation here in the U.S. as well as abroad. Look at the old railroad companies, look at the oil companies. Why is gas always the same price regardless of which gas station you buy it from? That's because the oil is controller by OPEC, a cartel. They control the worlds oil supply, and they set prices. Why are diamonds so expensive? Because DeBeers, another cartel, controls the worlds diamond supplies. You want Intel deciding how much you spend on a computer, I think not.

    If you actual think Intel reduced their prices to benefit the consumer, you have no idea how global economics works. Read a damn book sometime.
  • 0 Hide
    zerapio , March 12, 2009 7:30 PM
    scarpaIntel doesn't know what's coming right around the corner.

    Maybe it's the sucky roadmap that doesn't let them see
  • -7 Hide
    Kryptomage , March 12, 2009 7:32 PM
    EU can suck my crank, I figured the money they got of M$ would of bought all there houses and cars, guess they need a new sugardaddy now. It's there way of getting a payout without it being a crime, theres mattlock when you need him lol.
  • -9 Hide
    Kryptomage , March 12, 2009 7:34 PM
    KryptomageEU can suck my crank, I figured the money they got of M$ would of bought all there houses and cars, guess they need a new sugardaddy now. It's there way of getting a payout without it being a crime, wheres mattlock when you need him lol.

  • -9 Hide
    m3kt3k , March 12, 2009 7:52 PM
    UNG Intel should sue AMD for beaing a bunch of cheapskates and force them to RAISE there price.

  • -3 Hide
    Tekkamanraiden , March 12, 2009 8:14 PM
    Is there anyone in the tech sector that the EU isn't trying to fine?
  • 4 Hide
    hellwig , March 12, 2009 8:43 PM
    hellwig\Astoner, what happens when Intel wins and AMD goes under. You think those low low prices are going to stick around?


    I feel I should note that Intel is accused of offering these prices in exchange for manufacturers agreements that they not use AMD. There is nothing that says a company can't set whatever price they want, however, they can't tie their prices to loyalty agreements or other anti-competitive practices. If I recall, they made computer manufacturers sign contracts here in the U.S., which is how they screwed themselves over.
  • -5 Hide
    cheepstuff , March 12, 2009 9:08 PM
    you know, unions always destroy capitalism. this a really lame lawsuit
  • -2 Hide
    A Stoner , March 12, 2009 9:38 PM
    hellwigLook at Walmart. Sure, they move in with low prices to undercut their competitors, and in big cities, they may drive out mom-and-pops but other big chains stick with them. However, in small areas where there is no competition, Walmart doesn't keep those low prices.


    I am sure you have proof of the price gouging you are claiming here? I have been to many small town Walmarts, and the prices there are the same as the nearby big city Walmart. Drive across country, stop in a Walmart, and find what you went shopping for, and it is pretty much the same price no matter what Walmart you go into. I live in a small town right now, Walmart is the only thing going here, unless you count the drugstores, and the prices here are exactly the same price I pay when i drive the 40 miles towards Houston where the next two closest Walmarts are.

    I do not want to see a monopoly, but it is no worse than the government setting price floors for products for no other reason than to prop up a failing company. If it was any other product, you would have a cow. Government fines dairy industry for keeping prices too low for soy product sales to compete. Government fines the chicken industry because chickens are far less expensive than lobsters and are destroying Maine lobster sales figures. Tough shit, if you cannot make money doing it, stop doing it.

    If AMD goes bankrupt, there is no reason to beleive that another company could not take over their assets and prevent a monopoly. There is IBM for one that might still be interested in getting into the x86 business again. Who knows. But keeping prices high to keep AMD profitable is not in the consumer's best interest in any way, shape or form.

    If Amd is protected from failure, AMD could just stop improving, since they will always have market share as long as the government is there to force Intel into raising prices to the point that AMD is competitive.

    Explain to me how stealing from one to give to another is going to make consumer's live's better. We will make Intel customers pay extra money for Intel chips in order to subsidize AMD buyers. Yeah, great plan government.
  • -1 Hide
    A Stoner , March 12, 2009 9:43 PM
    hellwigThere is nothing that says a company can't set whatever price they want, however, they can't tie their prices to loyalty agreements or other anti-competitive practices.

    How do you feel about coke, pepsi, lays, and other snacks? Think they do not have special deals going on that are laid out exactly like what you just said they cannot do? Go to a resteraunt and ask for a Pepsi for yourself and a Coke for yourself. Then ask yourself why a place that serves food would not have both to satisfy all customers. Obviously this stuff is not illegal. Schools get contracts for selling specific only snack foods and beverages. Same goes for resteraunts and beverages. I am sure there a ton of other products with the same shit going on, and the government does not seem intent on fixing them.
  • 2 Hide
    SAL-e , March 12, 2009 11:09 PM
    A StonerHow do you feel about coke, pepsi, lays, and other snacks? Think they do not have special deals going on that are laid out exactly like what you just said they cannot do? Go to a resteraunt and ask for a Pepsi for yourself and a Coke for yourself. Then ask yourself why a place that serves food would not have both to satisfy all customers. Obviously this stuff is not illegal. Schools get contracts for selling specific only snack foods and beverages. Same goes for resteraunts and beverages. I am sure there a ton of other products with the same shit going on, and the government does not seem intent on fixing them.

    I don't want to comment on legality of "exclusive deal" I would like to point out that there is fundamental difference between Coke deals and Intel's deals.
    If I go to restaurant and request Pepsi and they offer only Coke, I have the choice to say "Bring me a glass of water". If more people doing that Coke deal will be dead before you know.
    If I go to buy CPU and only offer is Intel, I can't buy generic CPU. That is the essence of the case.
    In general I don't like government to stick their finger in business, but in some cases I have no good arguments against it.
    I believe that only good solution is to teach everyone that bundle deals are only met to maximize profit and should be avoided in most cases.
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