D.F.

Krause

Read D.F.'s bio and previous columns

May 15, 2009

Intel Inside . . . a Glass of Pepsi (Or, D.F.’s New Antitrust Rules)

It’s tough to be Intel. OK, not really. OK, not at all.

But owning the computer chip market is bound to come with a few small annoyances. Like being fined $1.45 billion by the European Union, not to mention $21 million by South Korea, for being too successful.

Intel sells 80 percent of all the computer chips in the world that are procured and used to make computers. I don’t think they even bother telling you “Intel Inside” anymore, since you pretty much just assume that. Intel has one competitor of note, Advanced Micro Devices Inc., and it’s hard to get traction in any market when it’s so thoroughly dominated by one established player.

According to the EU, Intel is making it too hard – as in, unfairly so – by using its superior cash position to offer enticing rebates to its customers, provided, of course, they don’t buy too many chips from AMD.

This may or may not break the rules. And it may or may not harm consumers, although it’s hard to see how when AMD’s presumably superior chip, launched in 2003, inspired Intel to come out with a superior product of its own. Even a competitor who controls less than 20 percent of the market is capable of lighting a fire under the leader if its product is good enough.

Besides, giving away free products to gain or maintain market share is hardly the exclusive domain of the industry leader. AMD tried it too. It tried to give one manufacturer a million chips for free, but the manufacturer took a pass because it would have had to forfeit its Intel rebate.

Is this what I’ve been doing wrong? I keep expecting my clients to pay me. Maybe if I turned around and gave their payments right back to them, or just gave away my services for free, I could so firmly own the market, I could get fined billions of dollars – not that I would have billions of dollars, because I’d be working for free.

But the outrage of international bureaucrats knows no bounds.

At any rate, it’s clear to me that we need to take a fresh look at some of these antitrust rules. If the industry leader is getting fined for giving rebates, while the challenger is trying to give away stuff for free and getting no takers, something is seriously whacked here. So I’d like to propose some new anti-trust rules that will at least have people acting a little more rationally, if not making any money, since we apparently no longer encourage that sort of thing.

Try these:

-          From now on, computer chip manufacturers must conduct the equivalent of The Pepsi Challenge before taking an order. It’s simple. Pour a glass of Coke. Pour a glass of Pepsi. Put an Intel chip in one. Put an AMD chip in the other. Wait a few minutes for the flavor to be absorbed, then have the customer take a drink. Whichever one tastes better determines the chip he or she will buy. If the customer can’t decide, the company buys the Meathead chip inside the Royal Crown Cola.

-          You know how computer chips are really, really small? Try this. Go to the home of your customer company’s CEO. Toss the chip up high right in front of the CEO’s cat. If the cat likes it as a toy, don’t permit the CEO to buy the chip. It’s too big. If the cat eats the chip, don’t sell the CEO the chip. Use the money to buy a new cat instead. Or, put one Intel chip and one AMD chip in the cat’s food. The last one left in the bowl is the one you have to sell the CEO. Why? Because it’s Europe! It makes as much sense as anything else they do.

-          You want to make it fair? Have both companies go before the EU for bailouts. You say they don’t need bailouts? Increase their fines! Eventually, they’ll come hat in hand. Then you’ve got control of the industry, and you just make a rule that says every purchase of computer chips must be half Intel and half AMD. Fairness abounds!

Or you could just let them fight it out. It would be one thing if they were getting together and fixing prices. That would clearly hurt consumers, and would need to be stopped. But flogging Intel for using its strength to control the market doesn’t really help consumers.

I can see where Europeans would be a little sensitive about the notion of some super-strong power rolling over them all, but it’s too late now, and Neville Chamberlain’s infamous piece of paper wouldn’t have been any more effective if he’d saved it on a computer chip.

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