Intel to chip away despite legal issues

Intel will have to battle legal issues as it tries to makes its way into the mobile and graphics segments

Next year will be challenging for Intel as it fends off accusations of monopolistic behavior while trying to establish a larger presence in the mobile and graphics segments.

Intel suffered big setbacks this year, delaying key products like the Larrabee graphics processor and attracting the attention of governments worldwide for alleged anticompetitive behavior. Intel's processors go into more than 80 percent of PCs worldwide, and the chip giant has battled accusations of using its market position to shut out competitors.

The European Commission in May found Intel guilty of monopolistic behavior, fining the chip maker €1.06 billion (US$1.45 billion at the time) after finding the company guilty of giving rebates to PC makers in exchange for buying its microprocessors in bulk. The New York attorney general and the U.S. Federal Trade Commission recently filed antitrust cases, accusing Intel of illegally using its market position to stifle competition and depriving consumers of choice in the microprocessor industry.

The increased scrutiny could impact business dealings for Intel in the short term, analysts said.

"It's always a distraction when you have a team of lawyers breathing down your neck," said Nathan Brookwood, principal analyst at Insight 64. "When you have a dominant position in the market, there are a variety of constraints that the legal system places on what you can do to maintain the position and how you behave."

Top executives may spend more time poring over legal issues, but Intel has a strong structure in place to handle day-to-day issues, Brookwood said. Intel has strong PC and server chip sales, which should continue as it releases chips and executes its manufacturing strategy.

While legal issues shouldn't threaten Intel's market position, they could change the way Intel deals with customers, said Dan Olds, principal analyst at Gabriel Consulting Group. This could help competitors like Advanced Micro Devices and Nvidia, which could take advantage of Intel's perceived period of weakness to grab market share.

Intel came under increased scrutiny because of incentives it provided to PC makers that shut out rivals like AMD. Intel may need to cut back on some of those incentives, which could provide a level playing field for AMD to compete, analysts said. AMD earlier this year settled a lawsuit with Intel for $1.25 billion after accusing the chip maker of offering rebates that kept AMD from making deals with PC makers.

PC makers will now have an opportunity to evaluate AMD and Intel chips based on merit and commercial propositions. But will PC makers choose more AMD chips over Intel?

"I would be surprised if AMD would win," Brookwood said. Intel has stuck to product plans like clockwork and emerged with a stronger product line than it had a few years ago, he said. AMD is a generation behind in the manufacturing process, and will have to compete fiercely to get design wins. However, AMD offers a price advantage and better graphics capabilities than Intel, which could attract some PC makers.

Another analyst agreed, saying it remains to be seen how much the tide has swung in AMD's favor. "It's not a simple question," said Jack Gold, principal analyst at J. Gold Associates. "Yes, AMD chips are less expensive and lower overall costs of systems, which consumers appreciate. But Intel chips generally offer higher performance on PCs."

Businesses may be willing to pay a few dollars more to get extra performance from Intel chips, but consumers may not, Gold said.

The FTC has also expanded its case against Intel by talking about graphics processors, which is a significant escalation, analysts said. Some complaints involved Intel doing exclusive deals where PC makers had to buy processors with chipsets, but the FTC wants to make the chipset market more competitive, Olds said. That should open the market AMD and Nvidia.

Intel has an eye toward changing its chip architecture by integrating many of the chipset components, including the graphics processor, inside the CPU. The FTC could take a hard look at those levels of integration, which could impact the way Intel licenses and designs chip technology, analysts said. Intel plans to ship laptop and desktop processors that integrate GPUs inside CPUs early next year.

Chip licensing battles are already brewing -- Intel in February filed a lawsuit asking a judge to rule that Nvidia was not licensed to produce chipsets for Intel's processors with integrated memory controllers. Nvidia later countersued Intel for breach of contract.

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Agam Shah

IDG News Service

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