Friday, August 6, 2010

Intel, FTC settle chip-pricing suit

SAN FRANCISCO — The Federal Trade Commission is trumpeting its settlement with Intel Corp. as a victory for consumers who have overpaid for computer chips for a decade, though computer buyers shouldn't expect a sudden drop in prices.
The deal announced Wednesday represents the end to the harshest antitrust lawsuit Intel has faced yet from government regulators, and it imposes the strictest set of changes onto the way Intel does business.

But any changes as a result of the FTC's actions probably would be gradual, and possibly imperceptible, to most people.

One reason is that the prices for computer chips have steadily fallen anyway as technological advancements make it cheaper for companies such as Intel to make more powerful chips. Consumers have gotten used to getting more computer for less money every time they go shopping.

The FTC's case is built on the argument that those prices haven't fallen as fast as they could have. It has accused Intel of contributing to that by abusing its position as the No. 1 supplier of central processing units (CPUs) and graphics processing units (GPUs) to box rivals out of the market and stifle competition.

CPUs are the "brains" of computers and are among their most expensive parts, often making up about 15 percent to 20 percent of a computer's price. GPUs are chips that make graphics look good on computer screens.

FTC Chairman Jon Leibowitz said Intel's behavior stepped well over the line — moving beyond "the type of aggressive competition on the merits that we all encourage and into the realm of unfair, deceptive and anticompetitive conduct."

Prices have fallen

Intel has long denied the charges and has pointed to the industry's falling prices as evidence that the market is functioning normally.

Its argument has supporters.

Last week, the special master appointed by a federal court in Delaware to oversee class-action lawsuits against Intel argued in Intel's favor that consumers have benefited from the controversial discounts that Intel gives computer makers. The reason? Those savings are often passed along.

Intel's general counsel, Doug Melamed, said the settlement "provides a framework that will allow us to continue to compete and to provide our customers the best possible products at the best prices." Melamed added that the settlement puts an end to the "expense and distraction" of the litigation.

Investors appeared unmoved by the FTC settlement, which was expected. Shares fell just 2 cents to close on Wednesday at $20.73.

"I think it's more of a formality than anything else and don't think it materially changes the game for anybody," said Patrick Wang, a semiconductor analyst with Wedbush Securities.

A settlement that didn't have any major surprises "was never going to impact the stocks. If anything, it's a relief," Wang said.

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