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Intel Corporation (INTC)
Intel Fined $1.45 billion by European Union
Intel Corp., the world's largest computer-chip maker, was fined a record $1.45 billion dollars by the European Union for abusing its dominance in the computer chip market. Following an eight-year investigation, the European Union found the chip maker illegally kept smaller rival Advanced Micro Devices Inc. (AMD: Charts, News, Offers) out of competition by paying computer manufacturers to buy all or almost all of their chips from Intel. The fine is the largest ever assessed for monopoly abuse and easily trumps the 497 million-euro penalty levied against Microsoft Corp. (MSFT: Charts, News, Offers) in 2008. What was the giant chipmakers response to this hefty fine? How will this affect rival AMD and the overall market?
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Intel plans to appeal the commission's decision to a European court in Luxembourg. Bruce Sewell, Intel's general counsel said in a telephone interview, "the decision is improper and incorrect...We have never refused to sell to a company and we have never required that a company not buy from AMD." Intel has repeatedly maintained that it did nothing wrong and that its rebates and discounts were legal and a commonly used way of rewarding companies for purchasing very high volumes of its products. "We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace," Intel Chief Executive Mr. Otellini said. "There has been absolutely zero harm to consumers."
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In the David and Goliath scenario, AMD will be celebrating its successful slingshot throw at Goliath's head. Intel makes roughly 80% of the microchips in personal computers and servers. President of AMD's European unit, Giuliano Meroni, said in a statement that the decision "will shift the power from an abusive monopolist to computer makers, retailers and above all PC consumers." AMD was a primary instigator of the European Commission's case and worked directly with investigators to help provide evidence. European investigators also carried out their own raids on Intel offices and collected thousands of documents, including e-mails, contracts, and interviews with sources.
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The computer makers that were enticed to not use AMD's chips included Acer Inc., Dell (DELL: Charts, News, Offers), Hewlett-Packard (HPQ: Charts, News, Offers), Lenovo Group Ltd. and NEC Corp., the commission found. The commission also claims that Intel made payments to electronics retailer Media Markt on the condition that it only sell Intel- based PCs. The EU has evidence that Intel "went to great lengths" to cover up its illegal practices and the conditions weren't in the company's contracts, said EU commissioner Kroes. The penalty represents about 4% of Intel's $37.6 billion in sales last year. As of March 28, 2009, Intel had $12.8 billion in cash, debt instruments included in trading assets, and short- and long-term investments.
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Markets have been expecting this fine for some time and it has been priced into the stock. Although it is a very large amount, the fine isn't likely to have a huge affect on Intel. However, the worry is that continuing oversight of the EU may be the bigger issue. The EU regulator said that it would actively monitor Intel's compliance with the ruling. Under the order, Intel must change its business practices immediately pending its appeal, although it can ask for an injunction. The orders are a strong warning sign to other technology firms under investigation that further decisions are most likely on the way.
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