Is that all there is? Analysts think Intel will handle FTC

Intel officials shouldn't lose too much sleep over an antitrust lawsuit filed against the company by the US Federal Trade Commission, several industry analysts say. The FTC's charges focus on a relatively narrow set of issues, and the chip maker is likely well prepared to defend itself against the charges, analysts say. FTC commissioners voted 3-to-1 in favor of lodging the suit, which charges Intel with unfairly withholding key technology information from customers and competitors, and of using its monopoly power to 'cement its dominance over the microprocessor market.'

Intel officials shouldn't lose too much sleep over an antitrust lawsuit filed against the company by the US Federal Trade Commission, several industry analysts say.

The FTC's charges focus on a relatively narrow set of issues, and the chip maker is likely well prepared to defend itself against the charges, analysts say.

"This is more of an annoyance for Intel than anything," says Ashok Kumar, financial analyst with US. investment firm Piper Jaffray, adding that he sees no need to change his "buy" recommendation for Intel stock.

FTC commissioners voted 3-to-1 in favor of lodging an antitrust case against the chip maker. The suit charges Intel with unfairly withholding key technology information from customers and competitors, and of using its monopoly power to "cement its dominance over the microprocessor market."

But the suit steered clear of other practices that were reportedly under scrutiny by the FTC, like whether Intel unfairly bundles other devices with its microprocessors -- such as memory and graphics chips -- in a way that makes it hard for manufacturers of those products to compete, analysts said.

"This is terrific news for Intel," says Nathan Brookwood, principal analyst with Dataquest. "The issue the FTC is attacking is more or less peripheral to their overall business interests."

"All they're saying is that because you're in such a unique position of power, you can't withhold confidential information from your customers," which will have little effect on Intel's core business, Brookwood says.

Specifically, the FTC charges that when Digital Equipment, Intergraph and Compaq Computer tried to enforce microprocessor patents against Intel, Intel retaliated by cutting those vendors off from technical information they need to build their products, and also threatened to cut off their supply of microprocessors, William Baer, director of the FTC Bureau of Competition, said at a press conference in Washington, DC.

Baer emphasised that Intel has abused its monopoly power. Intel has harmed those three competitors, and harmed the marketplace by reducing competition, he said. "Less competition means fewer good ideas and less competition in pricing. In general, it's a bad situation for consumers," he said on PBS' News Hour show. The message is that "if you compete with Intel, you'll be punished," Baer added.

Intel's defense is that it wasn't trying to harm the companies, but that it was just "laying some speed bumps," Baer said. But Intel did more than that. "Intel has the weapon of monopoly power. It can say I'm going to disadvantage you in the market," Baer said in the televised interview.

In a statement, Intel denied the charges and said it was within its legal rights when it withheld information from those companies. Intel called the FTC's action "an attempt to assert a new legal theory under antitrust law."

"The Commission apparently questions whether Intel has the legal right to assert its intellectual property rights as a defense to an attack on its core microprocessor business," the Intel statement said.

Intel said it will take the case to a federal appeals court if necessary.

Many analysts compared the FTC's charges filed today with an antitrust suit lodged by the US Department of Justice against Microsoft last month, which accuses the software maker of using the dominance of its Windows operating system to control other software markets.

While the DOJ suit alleges a broad pattern of anticompetitive behavior, the FTC's suit hones in on two or three instances of misconduct, noted Kelly Henry, semiconductor analyst with IDC.

"My sense is they'll (the FTC) have a much harder time with Intel than with Microsoft," says Dan Hutcheson, president of VLSI Research in San Jose, California.

A few analysts say Intel should not be treated as a special case because of its size, and suggest the FTC might be overstepping a legal boundary by forcing it to share technology and maintain non-disclosure agreements with customers and competitors it is having disputes with.

However, another analyst disagrees.

"If Intel can unilaterally withdraw its NDAs (non-disclosure agreements) when it's in disputes with other companies, that gives it immense power to damage those companies," says Michael Slater, principal analyst with MicroDesign Resources.

Such power makes it very hard for a company like Intergraph or Digital to bring a complaint against Intel, and the FTC is entitled to take steps to prevent that as a matter of public interest, Slater said.

Analysts say Intel will likely be well prepared to fight its case, having been subjected to FTC scrutiny at least twice before. In July 1993, the agency closed a three-year investigation without revealing what practice it was reviewing. This January, the FTC said it would not block Intel's acquisition of Chips & Technologies Inc., but said it would continue investigating Intel.

Intel has "basically been planning for this to happen for years. My sense is that when the FTC gets into it they're going to find that Intel is a lot better prepared than they are," says Hutchesonh.

Intel for years has trained its staff so that they don't get too aggressive in pricing negotiations, don't bundle products, and don't tell customers that their purchasing status will change if they don't also purchase another Intel product, according to Hutcheson.

Meanwhile, Intergraph officials say they are pleased the FTC decided to take action.

"We're pleased to see it happen. It's a validation of one issue, the antitrust issue," says Jim Meadlock, chief executive officer of Intergraph, maker of workstations. However, he says, other issues remain between Intel and Intergraph that are not addressed in the antitrust case.

Intergraph sued Intel last November alleging Intel used coercive tactics to obtain rights to Intergraph's chip patents for free. A federal judge in April granted Intergraph a preliminary injunction in the case, ordering Intel to provide the computer maker with the information it needs pending the outcome of the case.

Digital -- which has since settled a patent dispute it had with Intel -- said only that it has been subpoenaed for information in the Intel case. Officials at Compaq declined to comment on the suit.

Baer says Intel previously demanded prototype information on Digital's Alpha chip technology and then warned Digital customers not to work with Digital. Intel agreed to again provide technical information about its chips only when Digital settled its patent lawsuit with Intel as part of a plan for Intel to acquire Digital's semiconductor business, according to the FTC.

In Compaq's case, Digital intervened on behalf of Packard Bell Electronics (now Packard Bell NEC) in a patent infringement lawsuit Compaq filed against Packard Bell in November 1994. Intel, supplier of motherboards to Packard Bell, cut off technical information Compaq needed and restored it only after Compaq agreed to cross-license its patents with Intel, the FTC said.

Meanwhile, at least a few of the 20 attorneys general from the states that joined with the Department of Justice to file an antitrust suit against Microsoft were briefed by the FTC on the Intel case before today’s announcement, said sources at different attorney general offices.

But for the most part, even the attorneys general that were the most vocal in the Microsoft case kept a low profile.

“We’re monitoring the case and we are confident that the Federal Trade Commission will handle the case splendidly,” said Mollie Conkey, a spokeswoman for New York Attorney General Dennis Vacco.

The FTC suit against Intel will have no effect on the ongoing state cases against Microsoft, which have been consolidated with the DOJ case, say sources at several attorney general offices.

Meanwhile, the European Commission said it is not considering taking any action against Intel at this time because it has not received any complaints against the chip maker.

"If the FTC were to take action, it is equally unlikely that the Commission will take any action unless it discovers any anticompetitive behavior on the part of Intel that is not covered by the FTC action," Stefan Rating, spokesman for European Competition Commissioner Karel Van Miert said last week.

Separately today, Salomon Smith Barney lowered its second-quarter earnings estimate for Intel to US65 cents per share from 72 cents per share, and lowered the revenue estimate for the quarter, which ends later this month, to $5.6 billion from $5.9 billion, according to Reuters. The financial analyst firm said it based its change on the assumption that PC channel inventories will be greatly reduced in the quarter.

Intel's stock closed at $69.31, down 50 cents from yesterday's closing price of $69.81. Earlier today it fell more than two dollars to $67.75 before rising late in the day.

The FTC, based in Washington, D.C., can be reached at http://www.ftc.gov/. Intel, in Santa Clara, California, can be reached at http://www.intel.com/.

(Marc Ferranti in New York and Rebecca Sykes, Elizabeth Heichler and Nancy Weil in Boston contributed to this report)

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