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Cuomo begins antitrust investigation of Intel

New York Attorney General Andrew Cuomo is investigating possible violations of state and federal antitrust laws by Intel Corp., the world's largest manufacturer of computer microprocessors.
/ Source: The Associated Press

New York Attorney General Andrew Cuomo is investigating possible violations of state and federal antitrust laws by Intel Corp., the world’s largest manufacturer of computer microprocessors.

A Cuomo spokesman said subpoenas were being delivered Thursday seeking information on whether Intel coerced customers to exclude Advanced Micro Devices Inc., known as AMD, from the market for a specific computer processing unit.

Cuomo said his preliminary review showed a need for a full investigation.

The subpoenas seek data about Intel’s pricing strategies and whether Intel penalized computer makers, cut off competitors’ distribution channels, and improperly paid customers for exclusivity.

“Our investigation is focused on determining whether Intel has improperly used monopoly power to exclude competitors or stifle innovation,” Cuomo said. “We will also look at whether Intel abused its power to remove competitive threats or harm competition in violation of New York and federal antitrust laws.”

Intel said it hasn’t broken any laws despite several legal actions under way against it around the world. The company believes the legal moves are driven by AMD, its closest competitor.

“We believe our business practices are lawful,” said Intel spokesman Chuck Mulloy. “We also believe the microprocessor market is a competitive market and is functioning the way one would expect a competitive market to function.”

Mulloy said Cuomo’s concerns mirror those in a lawsuit AMD filed against Intel in federal court in Delaware in 2005. The case is scheduled to be heard in April 2009, Mulloy said.

Mulloy also said Intel filed its response this week to the European Union, which has a statement of objections after a six-year investigation. In July, the European Union charged Intel with violating antitrust rules by selling its chips below cost to strategic customers, among other practices.

Intel also is responding to preliminary charges by a regulator in Korea, he said. AMD also has two private lawsuits pending against Intel in Japan, Mulloy said. Japan’s Fair Trade Commission said in 2005 that Intel violated fair trade laws — a ruling the company accepted without admitting wrongdoing.

“In all cases, we denied we violated any laws,” he said.

A spokesmen for AMD declined comment.

At issue in Cuomo’s probe is whether AMD has a fair chance to supply its X86 computer processing units for desktop and laptop computers and servers. Cuomo says Intel commanded 80 percent of the $30 billion market.

AMD’s 2005 lawsuit claims Intel bullied major customers — PC makers like Dell Inc. — into exclusive deals and offering secret rebates. AMD alleged anticompetitive practices in several countries, including Britain, Germany and Japan.

Intel, which commands three-quarters of the worldwide microprocessor market, has denied AMD’s allegations and defends its business practices as legal and beneficial to consumers.

U.S. regulators appear to be resisting a formal probe of Intel’s marketing practices, despite requests from members of Congress and AMD.

In August, Sen. Charles Schumer and Rep. Kirsten Gillibrand asked the Federal Trade Commission to investigate the company. A letter to the FTC from the two New York Democrats said: “If the allegations against Intel are true, the potential harm to consumers could be profound.”

In a response in September, the FTC told legislators the agency is barred by law from disclosing investigations.

Schumer has met with AMD representatives about the company’s plans to build a $3 billion semiconductor plant in upstate New York, a project strongly backed by state Senate Majority Leader Joseph Bruno — a Republican whose district includes the proposed site — and Democratic Gov. Eliot Spitzer.

“Antitrust investigations into Intel are springing up everywhere except Washington,” Schumer said Thursday. “The FTC needs to stop looking the other way on Intel and start getting serious about enforcing antitrust law.”

Mulloy wouldn’t comment when asked if he thought the support from New York lawmakers for AMD, and now the investigation by Cuomo, have anything to do with the plant AMD has proposed near Albany.

“I cannot speculate about the proposed factory in New York and this decision,” Mulloy said.

Though AMD is the world’s second largest maker of microprocessors, it’s a much smaller company than Intel and has been struggling in recent years.

AMD’s stock has taken a beating the past two years amid fears the Sunnyvale, Calif.-based company has been losing some of its competitive edge against Intel because of debt from a costly acquisition and because its technology is aging.

In October, AMD posted a loss of nearly $400 million for the quarter that ended in September. Intel said it earned $1.86 billion in the same period.

Last month, AMD CEO Hector Ruiz said the chip maker is committed to breaking even in the second quarter of 2008 and returning to profitability in the third.