Illustration: Harry CampbellWhile chip makers AMD and Intel duke it out in the industry's latest antitrust battle, users are left with some questions. Whether achieved legally or illegally, has Intel's overwhelming domination of the chip market made PCs more or less expensive? And what effect, if any, will AMD's lawsuit have on what we pay for PCs in the future?
Industry players and experts disagree on the answers, but a surprising number think the overall effect of Intel's market dominance has been to lower costs, not raise them.
Higher Prices?
AMD in June sued rival Intel, accusing the company of persistently bullying at least 38 PC companies, retail stores, and distributors into buying its CPUs instead of AMD's. According to the suit, Intel's 90 percent market share was gained unfairly, via antitrust-violating practices--including cash payoffs. AMD seeks billions in damages and an end to the practices. Intel says it has done nothing wrong, and will officially reply to the 48-page complaint around the time you read this.
Though Intel and the companies it allegedly bullied--including Dell, Gateway, HP, and Lenovoa--have declined comment, AMD is quick to claim credit for helping to lower computer prices. Competition from AMD is primarily responsible for driving the average desktop PC's plunge from $2000 to $500 in the last decade, says Tom McCoy, AMD's chief administrative officer and executive vice president of legal affairs. If Intel is forced to stop its monopolistic practices, PC prices will drop even faster than the usual 10 to 15 percent a year, he says.
Users Pay
Some experts are less certain of the salubrious effect an AMD victory would have. Dick Schmalansee, an MIT economist who testified on behalf of Microsoft in the mid-1990s during the Department of Justice's antitrust investigation, says it's virtually impossible to know how Intel's majority share of the chip market has shaped system prices, or how prices might change as a result of an AMD win. "[The lawsuit] obviously gives Intel a public-relations problem. You would expect them to behave a little more gently in the marketplace, at least for a while. Which could be good or bad for consumers, by the way."
PC companies may like the idea of more competition, but Intel's chip choke hold has helped keep the prices down, says Forrester Research analyst Simon Yates. If Intel loses a large chunk of its chip business to AMD, some of its manufacturing capacity will go unused and it will still have research and other fixed costs to meet, leading to an overall increase in the costs per chip. This may offset any competition benefit, Yates explains.
Pointing to the $3.2 billion in damages Intel might have to pay if it loses the lawsuit, Gartner analyst Ken Dulaney also predicts higher-priced PCs. "This lawsuit is a tax on end users," he says. "When a new Intel processor comes out, let's say the target price was $465 for that chip. So maybe they make it $468 [to pay the judgment costs]." The markup to the consumer buying an Intel-based system may be a bit higher, though that person may not be aware of it. "One way or another, users will wind up paying for it," Dulaney says.
Tax on AMD
If any system costs have been inflated in the recent past as a result of Intel's alleged practices, they're probably the ones for AMD-based PCs, claims Frederic Warren-Boulton, an economic analyst and consultant based in Washington, D.C. Warren-Boulton says that if the misbehavior that AMD alleges against Intel is true, what Intel is essentially saying to its PC companies and retailers is that if they use AMD's products, Intel will increase the cost to them of Intel's own chips. Since these vendors still have to buy some Intel chips, they turn to AMD to compensate them for the extra Intel costs. One way AMD does that is by lowering its chip prices, but that savings does not get passed on to consumers. Vendors keep the AMD PC price a bit higher so they get a better margin of profit on the sale to cover the higher Intel costs. "Intel's discounts [to its chip clients] are really a tax on [end users of] AMD chips," he says.
Even if AMD wins, adds Gartner's Dulaney, its gain in market share may be far less than it expects. "This could be a hollow victory for AMD."
Carla Thornton
Ad Choices