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European Commision (EC) Charges Intel with Antitrust Violations
Advanced Micro Devices (AMD) Chairman and CEO, Hector Ruiz and AMD CAO, Tom McCoy Respond to Media Inquiries Via Conference Call
WHO: AMD Chairman and CEO Hector Ruiz and Executive Vice President of Legal Affairs and CAO Tom McCoy.
WHAT: Conference call with Hector Ruiz and Tom McCoy to respond to media inquiries
regarding the European Commission’s announcement that it has formally charged Intel with violating EC antitrust law and issued a formal "Statement of Objections" against the company. The EC charges underscore how Intel's illegal actions have suppressed competition in the IT industry and harmed millions of consumers in the European Union and throughout the world.
WHEN: 11:00 AM EDT (8:00 AM PDT) on Monday, July 30, 2007
BACKGROUND: The EC issued the Statement of Objections after a multi-year investigation, including raids of Intel offices. The EC’s decision comes after the March 2005 ruling by Japan’s Fair Trade Commission, which determined that Intel had violated the country’s anti-monopoly laws by illegally forcing full or partial exclusivity with five Japanese PC makers. In addition, court documents released from that ruling reveal that the illegal activities were orchestrated by Intel’s corporate management in Santa Clara, CA.
An active antitrust investigation - with evidence seizures similar to those in Japan and Europe - continues in South Korea, and AMD has brought antitrust civil actions in Japan and the United States.
Allegations of Intel misconduct are also echoed in a U.S. class-action complaint filed in January 2007, which claims that Intel illegally paid a large manufacturer in excess of one billion dollars a year to not purchase microprocessors from its competitors.
Operator: Good day, ladies and gentlemen, and welcome to AMD's media conference call regarding the European Commission's statement of objections against Intel. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone.
I would now like to turn the conference over to your host, Hector Ruiz, AMD's Chairman of the Board and CEO, and Tom McCoy, Executive Vice President, Legal Affairs and Chief Administrative Officer. Mr. McCoy, you may begin.
Tom McCoy: Good morning and thanks for joining us. We decided to convene the call in order to accommodate the high number of requests for comment from AMD on the action announced by the European Commission last Friday. We'll do our best to answer your questions in the time that we've got today.
The European Commission's statement of objections against Intel demonstrates the Commission's commitment to protecting consumers and for a thorough multi-year investigation, the Commission has charged Intel on the basis of the evidence that it seized and collected from Intel and its customers and has acted for the protection of hundreds of millions of consumers in the European Union who essentially have been paying Intel and unjust and illegal monopoly tax.
The Commission's chart sheet outlines Intel's abuse of conduct that, according to the Commission, is mutually reinforcing, amounting to an integrated scheme to shut out its rival from the market.
The conduct includes the legal contract terms, so-called "rebates," designed to compel computer manufacturers to boycott AMD. It includes illegal payments to computer manufacturers to delay or cancel the launch of AMD-based products, and it includes below-cost pricing in the contact of the bids in the lucrative service segment of the market designed to blockade AMD technology from gaining market acceptance.
The Commission explained in confirming the charge sheet that in its words, in the short-, medium-, and long term, Intel's actions are bad news for competition and bad news for consumers, and that's right, because Intel's conduct, as outlined by the European Commission stifles competition and keeps prices higher, and it slows innovation.
The conduct in question is designed by Intel to insulate itself from innovation and price-performance competition from AMD and to deprive consumers of value propositions and choices that computer manufacturers want to provide them.
The Commission's policy focus on consumer harm is consistent with that of antitrust law worldwide, an examination of whether a firm's conduct harms competition and harms consumers, and it builds on antitrust scrutiny of Intel's illegal practices around the world. So please consider that in a lawsuit filed earlier this year in United States Court. It is alleged that Intel paid $1 billion a year to a major PC manufacturer to boycott AMD technology.
In a separate government case in 2005, the Japan Fair Trade Commission ordered Intel to stop paying major Japanese computer makers not to offer AMD-based systems. And now in Korea, the Korea Fair Trade Commission is investigating Intel after raiding its offices in that country last September.
We do understand that Intel would like to position this as just a dispute between companies, but it isn't. This dispute is between the government of the European Union and Intel.
The European Commission has made a finding based on what they believe and say is a rigorous investigation findings of misconduct that now triggers an official proceeding. That proceeding is premised on the preliminary conclusion that Intel's success in the marketplace reflects its ill-gotten gains from anti-competitive illegal conduct.
The question is not why or whether AMD is right. The question today is why anyone should believe that the European Commission, like the Japanese government before it, is wrong. And Intel, which ducked just such an opportunity when the Japanese government similarly found illegality, has today conspicuously failed to explain why these governmental conclusions are wrong. There are no trade secrets or intellectual property involved with this type of conduct, and customers and consumers have a direct spate in the outcome of these proceedings.
With the European Commission's action, Intel now, once again, has the opportunity to publicly address these charges. We believe that the European Commission's action is a strong step toward a fully competitive marketplace where competition is based on merit and not bully and brawn.
So, with that, let me now introduce AMD Chairman and CEO, Hector Ruiz.
Hector Ruiz: Thank you, Tom, and thank you to everyone on the phone today. You know, our strategy, really, is pretty simple, something I understood pretty early since I joined the company. We are here to create value by empowering our customers. We empower them by introducing innovative technologies, architectural platforms, informed by customers and end-users [inaudible]. We have inspired and delivered innovation that makes Internet access more affordable processing more energy efficient, and we have empowered new heights of performance and virtualization, especially through our recent acquisition of ATI.
These are the things that customers and end-users really want from us, and these are the things that really matter. We know that innovation serves consumers by driving better price-performance ratios, more differentiation, higher quality, and more access to information and learning across the globe.
If you understand it this way, then the European's Commission action is not a legal judgment, but bringing this case to EUC is saying that the microprocessor market, as controlled by Intel, works exactly in the opposite way. The dominant firm controls customers and blocks their ability to differentiate. Their innovation is created to serve themselves not computer manufacturers or consumers. These actions harm consumers rather than serve them.
And in its charge here, the European Commission alleges that Intel has maintained its monopoly by improperly pressuring customers to boycott our products. The EUC did not outline specific instances of alleged misconduct. We know of many examples of such behavior. And we also know that, as a result, we have an industry in which many computer manufacturers are dependent on Intel leaving them vulnerable until their payments is received on the condition of boycotting AMD. This leaves little room for innovation or brand differentiation and allows Intel to continue its anti-competitive exclusionary actions year after year.
We also know there are some who would question this issue. Both sides need to be heard, and this is why I submitted by view to The Wall Street Journal, and I hope that would allow those who support this action so that they see the opportunity to present their case.
Because while it's always important to look closely at the basis for government action, the European investigation of Intel is worthy. It champions the core antitrust principles of innovation and consumer choice. As I've often said, earned success is one thing, the legal maintenance of a monopoly is quite another, and unless we actively enforce antitrust laws, the monopoly can afford to sit tight and decide just when to phase innovations, when to lower prices, and how much breathing room to allow smaller firms.
Think of it this way -- the antitrust laws don't really care whether one company or another wins, and that's the way it should be. The purpose of the antitrust laws is to reach bigger goals, the welfare of consumers, choice in the marketplace, innovation as a fundamental output of competition.
Last week's action by the European Commission was not about one company winning or losing, it was a formal governmental determination about the best way to ensure competition in the microprocessor market so that the wins and losses are based on the customer's choice.
That's a big step towards a world in which customers come first, innovation comes often, and consumers come to know whether they are truly free to choose.
Thank you for joining us here today and, Matt, I want to turn that over now to the question-and-answer period.
Operator: Thank you. Ladies and gentlemen, if you have a question at this time, please press the 1 key on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the pound key. Again, if you have a question, please press the 1 key on your touchtone telephone.
Again, ladies and gentlemen, if you have a question, please press the 1 key.
Our first question comes from Ian King of Bloomberg. Your question, please.
Ian King: Hi, guys, thanks for doing this call. I wondered if you could just outline for us a sort of possible result from all of this battle with Intel? I mean, obviously, you guys talk about it on a sort of higher level about the market being opened up and free and fair competition, but you must have some more specific goals for an end result for this in terms of concrete changes in behavior in terms of what a victory would really bring for your company, please.
Hector Ruiz: Tom, I'll make a comment and then place you where you can -- in case you wondered why I am doing it this way, Tom is in another city, and I'm in a different city, so we have to communicate via this line.
So first of all, from a business perspective, what we want is the opportunity for these practices that boycott our products and technology to stop, and from a business perspective, that's the most important issue so that our customers and consumers are free to choose based on the merits of our product and our technology and the things that we offer. Tom?
Tom McCoy: From a legal perspective, it's really pretty straightforward. If you were looking for precedent by which to imagine what an injunction would look like against Intel from a government agency, you might look at the consent decree between the U.S. Department of Justice and Microsoft.
The injunction remedies here would be pretty straightforward in terms of, for example, of forbidding Intel from providing these false rebate schemes, which are basically giving OEMs, in effect, a choice of doing the units that they expect from the customer and if they don't. If they don't abide by what Intel wants them to do in terms of market share, then the computer manufacturer suffers retaliatory price increases and other discriminations.
So that's what the release would look like -- that Intel would have to come to market with the kinds of contractual terms that do not allow it to leverage its monopoly in a system of rewards and punishments that compel the computer manufacturers to shun AMD technology and otherwise forfeit their brands and their ability to differentiate.
Operator: Our next question is from Rita Farrell from ASP. Your question, please.
Rita Farrell: Yes, hello. I'm calling to find out what the status is of the litigation that's before the courts in Delaware. How does this affect them -- affect the litigation, that is?
Tom McCoy: I think, first of all, as to the status, we're in the discovery phase of the litigation where the focus is on collecting all the relevant documents and electronic discovery from the parties who've been bogged down there because of Intel's epidemic failure in their ability to produce e-mails, which we're still working through.
You can look at it this way -- that the Commission's statement of objections and its charge sheet tells you that they were able to obtain from Intel and from the industry, particularly the computer OEMs, the evidence necessary to base a principal judgment against Intel for violating the antitrust laws and that, of course, does portend well for AMD's case in Delaware.
Rita Farrell: It does?
Tom McCoy: Yes, indeed.
Rita Farrell: All right, and have you -- yes, okay, thank you. That takes care of it.
Operator: Our next question is from Arik Hesseldahl of "Business Week." Your question, please.
Arik Hasseldahl: Hi, Hector, can you give us any -- I was just looking at the quarterly -- has there been any -- can you give me any visibility into legal expenses? Is this, so far, showing up as material or not? And, secondly, I'd like to know has there been even the slightest feeler of a settlement from Intel?
Hector Ruiz: I'll let Tom answer the second question. On the first one, these expenses are always significant. We don't break out in detail exactly the G&A expenses of the company, but, obviously, we indicated when we started that we expected them to be, in our lingo, "significant." But we have always anticipated, and we are prepared for it, but we're not going to give details of those expenses at the moment.
Arik Hasseldahl: Okay, and under what circumstance would they -- I mean -- there's got to be a kind of a point at which you have to break it, correct? Or I guess that would come at trial when they begin to grow.
Tom McCoy: Well, that's not correct. You won't see either AMD or Intel talking about the expenses. It's never really done, at least in my experience. But, yes, it's very expensive, and, no, there are no settlement negotiations in progress.
Arik Hasseldahl: Thank you.
Operator: Our next question is from Kirk Ladendorf of Austin America State. Your question, please.
Kirk Ladendorf: Gentlemen, I'm wondering if you'll comment on what seems to be AMD's recent progress in getting out some of those former Intel customers who were locked out from AMD in the past; namely, Dell and people like Toshiba in Japan. Does that, in any -- obviously, it's a market success for AMD, but does that, in any case, weaken your cases in these various jurisdictions?
Tom McCoy: No, I think it's actually the opposite, if you look at the data. You can tell that the increased global scrutiny on Intel has definitely had an impact in the marketplace. And while the spotlight is on, we see the global OEMs trying to begin taking advantage of the regulatory spotlight and begin to do more business with us.
So -- what you've seen from a marketplace perspective is that following the decision by the Japan Fair Trade Commission that Intel was violating and law in the public policy of Japan, following the filing of our U.S. antitrust case and then shortly followed by what was one of the largest dawn raid exercises ever by the European Union. That's when you saw the big OEMs begin making their move, and, of course, they are the ones who know, along with Intel, most intimately the evidence that the regulators are collecting.
It's worth noting that the evidence that is supporting these decisions by these regulators, that evidence is coming from Intel and the computer industry. It's not coming from us.
Operator: Once again, ladies and gentlemen, if you have a question, please press the 1 key on your touchtone telephone. Our next question is from David Gow of the Guardian. Your question, please.
David Gow: Oh, hello. Yes, I'm ringing from Brussels. Can you hear me fine?
Tom McCoy: We can hear you great.
David Gow: Oh, yeah, fine, good. What I want -- Intel says that they make the point in their response that -- late last week -- that the case is based on complaints from a direct [inaudible] rather than customers or consumers. So I'd like to know your response to that.
And, also, they're basically saying that the industry is competitive and working, and that the evidence for that is compelling and, basically, what they're saying is that when competitors perform and execute, the market rewards them. When they falter and underperform, brackets, that's you, the market responds accordingly. So I'd like to get some response to both those points, which they made late last week.
Tom McCoy: Well, the question is -- why are they unable to muster credibility with that argument with the government regulators or enforcing policies designed to protect consumers? So their argument is falling flat, one, because this is not an issue of AMD versus Intel. This is a question that the competition authorities have been presenting to Intel about how it is managing the market, how they are leveraging their dominance, and how that is affecting consumers in their constituent jurisdictions.
That's where Intel is failing to be persuasive. So this is between the governments and Intel, and, again, it's based on the evidence that Intel is supplying and is coming from the industry. Otherwise, you know, of course, a company's relative performance depends on their relative performance -- what the governments are saying is that in this industry Intel is distorting that process by leveraging its monopoly power in a system of rewards and punishments that keep our market share in de minimis levels, and that's the charge the Intel is going to have to answer and that, so far, in the regulatory interactions, have been unable to be persuasive.
David Gow: Right. Can you quantify how much those practices have cost you, as a company?
Tom McCoy: You know, that's a very good question. It has cost us, as a company, you know, I'm not going to talk in numbers that are going to be developed throughout the litigation, but the costs to us have been extraordinary in terms of over the years what's been deprived us in terms of revenue and margin. But, again, looking at it from a competition authority, that's not what they're looking at. What they're looking at are the tens of billions of dollars that consumers have been forfeiting in paying, what is, in effect, a monopoly tax that flows to Intel. That's what the focus is. It's on the consumer harm quantification. We'll worry about the quantification of AMD's losses when we get to trial in Delaware.
David Gow: Okay, yeah.
Unidentified Speaker: Matt, we have time for one more call, if there's any other questions.
Operator: At this time, I'm actually showing no further questions.
Tom McCoy: Well, we thank you very much for your time, and for your participation today.
Hector Ruiz: Thank you.
Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.
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