The Day Ahead: FTC Settles with Intel
Today's tech news headlines are almost certain to be dominated by this world: "Settlement."
At about 10 a.m. ET, Federal Trade Commission Chairman Jon Leibowitz is expected to explain a settlement that the government has reached with Intel, the world's largest chipmaker. In December, the FTC charged that Intel used anticompetitive tactics that harmed consumers in the PC market. At the root of the FTC's charges is the contention that Intel used its market power (it has about 80% share in PC chips) and pricing power to keep competitors from innovating.
Intel's competitors have complained that the chipmaker used volume pricing to unfairly control the market. (Intel has denied doing anything improper.) The gist of what they accuse Intel of doing: Giving rebates to PC makers on the condition that they source 100% or 90% of their chips from Intel. Buy from a competitor, and Intel could respond by charging more for chips, which can have a dramatic effect on profits in the low-margin PC business. (For several quarters over the last decade, Dell relied on Intel's rebate payments to make its earnings numbers, according to the FTC.)
What's a settlement going to change?
That's much of what we'll be hashing through today. In settlements like this, the accused party typically doesn't admit to any wrongdoing, and says the terms don't change anything. I'd expect Intel to say it never used unfair pricing tactics in the past even as it promises never to do so in the future. And I expect the company to point to the fact that PC prices have continued to drop over time as evidence that consumers weren't harmed.
In practical terms, though, this FTC settlement is likely to have an effect — no matter what the companies say.
Intel stock could either move up because uncertainty has lifted, or down because investors fear its rivals now have a stronger hand. Executives with Intel nemesis AMD have already told me they're picking up more business as a result of their $1.25 billion settlement with Intel last year, and point to design wins with Lenovo, Sony and Dell to prove their point -- they could see more business flow their way if PC makers really do feel freer to do business with Intel's competitors. And Nvidia could be the biggest beneficiary, if the settlement terms nudge Intel into allowing Nvidia chipsets to work with Intel chips.
I'll be following the news as it happens, talking to the newsmakers, and bringing you the latest.