Intel: We Didn't Do It

After a relatively quiet couple of months highlighted by a successful developer conference, Intel (Nasdaq: INTC  ) is once again in trouble. This time the heat is coming from Japanese regulators, who ruled this morning that the chipmaker has been stifling competition in the region.

Specifically, the six-page complaint says Intel, in at least one case, offered rebates or other funds on the condition that PC makers not work with any competing vendors, including longtime rival Advanced Micro Devices (NYSE: AMD  ) . Another deal allegedly offered money to manufacturers in return for giving no more than 10% of their chip business to Intel competitors. The filing further claims that the practices have been ongoing since May 2002.

For its part, Intel says its business practices are fair and lawful. But it also included a key hedge in a statement issued this morning. It says that the Japanese, in their ruling, didn't consider whether any of Intel's actions hurt consumers through higher prices or other fallout. This, however, is a bogus argument straight from the "end justifies the means" school of business.

I mean, really, can't we assume that if Intel is engaging in unfair competition in Japan, at some point its competitors will be forced to conclude that operating in the region is a waste of money? What happens to consumers at that point? Do we just wait and find out? No, I don't think so.

Consider what's already happened. According to industry researcher Gartner Group (NYSE: IT  ) , AMD's PC market share has taken a dive from 22% in 2002 to 10% in 2004. Over the same period, Intel's operations in Japan increased from 7% to 9% of its global revenues. Even more interesting is that from 2001 to 2002, Intel's total revenue from Japan declined from 10% to 7%. Did Intel engage in unfair competition to stem losses? Maybe. But it's also fair to point out that it was in March of 2003 that Intel introduced the hugely successful Centrino wireless chip platform. Its popularity clearly aided Intel in its fight with AMD.

In the end, I can't help but scratch my head at this development. Consider: Intel has eaten AMD's lunch in the flash memory business recently, has an intriguing platform strategy that ought to establish plenty of long-term growth, and is playing an admirable game of catch-up on 32/64-bit chips. Why put any of that at risk by not playing by the rules? Seriously. It's not as though Intel can win this battle if the Japanese come prepared with evidence. And they will.

For related Foolishness:

Fool contributor Tim Beyers expects this story will raise the blood pressure of some at the Intel discussion board. But don't get too cheery, AMD fans. Tim doesn't own stock in either company. He just doesn't think they make for very compelling investments right now. Obviously, Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile, which is here. The Motley Fool has a disclosure policy.


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