Intel Says Will Appeal Record $1.45 Billion EU Fine

The European Commission fined Intel a record 1.06 billion euros ($1.45 billion) on Wednesday and ordered it to halt illegal rebates and other practices it used to squeeze out its rival, AMD.

The world's biggest chipmaker paid computer makers to postpone or scrap plans to launch products using AMD chips, paid illegal rebates to encourage them to use Intel chips and paid a retailer to stock computers with its chips, the Commission said.

Paul Sakuma / AP

The antitrust fine, imposed after an eight-year investigation, is the biggest the European Union's executive arm has imposed on an individual company.

David Anderson, a lawyer at Berwin Leighton Paisner, said Intel was "facing a wall of regulatory resistance to its business practices around the world" with antitrust infringement decisions against it now in Japan, South Korea and the EU.

U.S. authorities are also investigating Intel, whose microprocessors power eight out of every 10 personal computers.

Financial analysts said U.S.-based Intel would be able to maintain its market dominance but the EU's decision could help Advanced Micro Devices boost its market share.

"Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years," European Union Competition Commissioner Neelie Kroes said.

The Commission said Intel must cease all illegal practices immediately but Intel President and CEO Paul Otellini said the company would appeal at the Court of First Instance, the EU's second-highest court.

"Intel takes exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor market," he said in a statement.

Kroes said the EU antitrust sanctions would be carried out immediately. In a previous antitrust case against software giant Microsoft , the Commission froze its remedies during part of an appeal filed by that company.

Tom McCoy, executive vice president of legal affairs at AMD echoed Kroes saying that the commission's investigations on Intel found serious consumer harm.

"[There was] serious consumer harm, based on hidden bribes and course of tactics that were designed to limit [AMD’s] ability to access the market with as good as innovation as Intel’s and lower prices," said McCoy in an interview with CNBC. "The commission found that prices were artificially high." 

Bruce Sewell, a lawyer for Intel, said the firm had not yet begun talks with the Commission on how to comply with its ruling and said: "We will try to be compliant with the order." The fine offset earlier optimism after Intel said late on Tuesday its orders and billing patterns had been slightly better than expected so far in the second quarter.

Intel To Remain Dominant

AMD was delighted with the outcome.

"Today's ruling is an important step toward establishing a truly competitive market," said Dirk Meyer, AMD president and CEO, in a statement. "AMD has consistently been a technology innovation leader and we are looking forward to the move from a world in which Intel ruled, to one which is ruled by customers." 

But some analysts said the decision would have little strategic impact and would not change the way Intel operates.

Others said it was a historic decision that showed the extent of the EU's determination to ensure dominant companies do not shut rivals out of the market and would have a big impact on the global IT industry.

"Intel's competitive advantage is not that they cheated or anything like that. It's that they are much larger than their smaller rival AMD. As far as long-term competitive advantage (goes), Intel still has it," said Andy Ng, an analyst at investment research firm Morningstar.

The Commission investigated practices dating to 2002, and said Europe accounted for 30 percent of Intel's current worldwide 22 billion euro market.

The Commission said Intel must pay the fine, which represents 4.15 percent of the company's 2008 turnover, within three months of being notified of the decision. It could have fined Intel 10 percent of annual revenue.

The penalty surpassed the 896 million euro fine last year on glass maker Saint-Gobain for price fixing, and a 497 million euro penalty in 2004 on Microsoft for abuse of dominance. Intel posted first-quarter sales of $7.1 billion.

Analysts estimated the company enjoys a sizeable cash balance, generating close to $10 billion in cash last year.

— CNBC.com contributed to this story

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