AMD faces tough road to benefit from EU aid

SAN FRANCISCO, USA: The record European Commission fine against Intel can at best help keep competition alive in the computer microprocessor market, but rival AMD will not benefit unless it solves its own internal problems.

The Commission fined Intel 1.06 billion euros ($1.45 billion) on Wednesday for abusing its dominant market position by trying to exclude others from the microprocessor market, and ordered the U.S. firm to change its practices.

"It might be slightly positive for AMD, but I really don't expect it to have a material change in the landscape or their opportunity," said Doug Freedman, analyst at Broadpoint AmTech.

"AMD's success is going to be predicated on their own ability to execute their roadmap and continue to bring innovative technology to the market," Freedman said.

In 2004, when the EU decided on the similar Microsoft case, it tried unsuccessfully to create competition where it did not exist. Microsoft holds a 95-percent share of personal computer operating systems now, as it did in 2004.

On Wednesday, the EU had the more modest goal of preserving competition because while Intel has never held that kind of quasi-monopoly, it faces competition from Advanced Micro Devices (AMD). Its scale is still staggering -- it controls roughly 80 percent of the microprocessor market.

"Consumers benefit from having AMD around because it keeps Intel's prices under control," said David Kanter, analyst at Real World Technologies.

PC demand has shown some resilience compared with the previous downturn, and last month Intel CEO Paul Otellini said the worst was over for the battered tech sector.

Intel's orders and billing patterns so far in the second quarter have been slightly better than expected, Otellini said this week.

Focus on products, finances

Sales of PCs fell 7 percent in January-March, with consumers' move to low-cost laptops -- including netbooks -- keeping shipments from slipping further. Research firm IDC has forecast netbook shipments to double in 2009.

Intel's market share is benefiting from the netbook boom as its Atom chip has a dominant position there -- while AMD has had to shy away from this market due to its limited resources. Its Neo chip offers more but is more costly and lifts PC prices.

"The two companies tend to leapfrog each other ... I think it's down to AMD's execution over the next few quarters. Netbook is precisely one of the areas where AMD needs a different approach," said Chris Ingle, research director at IDC.

Last week AMD merged its microprocessor and graphics chip businesses to adjust its structure and claw back market share lost to Intel in the wake of its bungled introduction of the Barcelona chip in 2007.

The Barcelona chip was delayed for months due to a technical bug, causing AMD to give back hard-won market share to Intel and resulting in massive losses.

Analysts say several new or upcoming AMD chips offer good opportunities for the company to gain share again, but loss-making AMD needs more capital to support major innovations.

To free resources, AMD earlier this year spun off its manufacturing operations to a new company, a joint venture with Advanced Technology Investment Co, an Abu Dhabi state-owned venture capital firm.

"AMD has recently come out with some exciting new products, and they could claim that hey, you know, we've got great products and the only thing standing between us and more market share is Intel's heavy hand," said Insight 64 analyst Nathan Brookwood.

Intel to change inside?

The EU executive said Intel paid computer makers to postpone or cancel plans to launch products that used AMD chips, paid illegal, secret rebates so computer makers would use mostly or entirely Intel chips, and also paid a major retailer to stock only computers with its chips.

It ordered Intel to "cease the illegal practices immediately to the extent that they are still ongoing."

Intel may continue to offer rebates, so long as they are legal, the Commission said.

Analysts said if Intel's business practices were still deemed to be against the ruling, the firm was likely to have to change its business practices.

"We've seen them in the past basically admit to not doing any wrong, but also at the same time stop the specific practice that is found unacceptable," said Broadpoint AmTech analyst Doug Freedman. (Additional reporting by David Lawsky in Brussels, Kelvin Soh in Taipei and Georgina Prodhan in London; Editing by Guy Dresser)