UPDATE 4-EU says Intel tried to squeeze out Advanced Micro

(Adds analyst comment, final paragraph)

BRUSSELS, July 27 (Reuters) - Intel slashed prices below cost and gave huge rebates in an illegal attempt to drive its smaller competitor out of the market, the European Union said on Friday in charges against the world’s largest chipmaker.

Intel Corp. INTC.O controls four-fifths of the market for the central processing units at the heart of the world's one billion personal computers and servers, with the rest made by Advanced Micro Devices, Inc. AMD.N

The European Union’s executive arm, in its latest clash with a personal computer technology giant, alleged Intel illegally weaned away computer makers from AMD.

“The rebates offered by Intel were of such a quantity and such an amount that an efficient competitor would be forced to price below cost,” European Commission spokesman Ton Van Lierop said. “We think that would be bad for competition and bad for consumers.”

Intel’s general counsel said the company had followed the law and that the Commission made mistakes in its charge sheet.

“We are confident that the microprocessor market segment is functioning normally and that Intel’s conduct has been lawful, pro-competitive, and beneficial to consumers,” Bruce Sewell said.

Most of the EU executive’s reasoning was not made public, but it gave some details. Based on information from computer makers and others, it found Intel used three tactics.


The Commission charges track alleged abuses for about three years, starting in 2003. They are:

-- Intel provided conditional rebates to computer makers so long as they agreed to obtain most or all of their CPU chips from Intel.

-- Intel made payments “to induce (computer makers) to either delay or cancel the launch” of products using AMD chips.

-- Intel provided CPU chips to strategic customers such as governments and educational institutions at below cost.

Intel has until Oct. 8 to reply. The Commission can fine it up to 10 percent of annual turnover if unsatisfied with the company’s formal response. Intel would be able to appeal.

AMD praised the Commission’s action.

“We are confident that this statement of objections will be a catalyst in opening the global microprocessor markets for the benefit of consumers and PC companies alike,” said Giuliano Meroni, AMD president for Europe, Middle East and Africa.

AMD gained market share against Intel in 2005 and most of 2006, but hit a downturn when Intel rolled out powerful new processors and cut prices on older products.

AMD dropped from a 25 percent market share at the end of last year to 19 percent by March 2007, according to market research firm Mercury Research.

The Commission is facing a challenge to its authority to enforce the law against abuse of market dominance.

In 2004, the Commission found software company Microsoft MSFT.O had competed unfairly and ordered it to change its practices, fining it nearly 500 million euros ($686 million).

Microsoft went to court against the decision and European Union judges will rule on the case on Sept. 17.

“We are eagerly anticipating September 17th,” Intel’s Sewell said, as it could affect the Intel case.

Gartner analyst Steve Kleynhans said such cases drag on a long time, but Intel’s process-driven management was unlikely to be distracted. “For the next couple of years it will be business as usual,” he said.

For details of the charges against Intel, please click on: here