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Is Intel Only Guilty of Outselling AMD?

Today New York's attorney general Andrew Cuomo filed a federal antitrust lawsuit Wednesday against Intel, charging that Intel violated state and federal laws by abusing its dominant position in the chip market to squelch other CPU chip makers, especially Advanced Micro Devices.

I haven't read the legal briefs, but I have discussed this issue with two former heads of two major PC manufacturing units -- when they were not longer employed in the PC sector. If what they've told me is true, that lawsuit is a load of bull pucky.

Here's the real scoop. From what I've heard, the reason that PC manufacturers keep choosing Intel over AMD is that Intel does a better job of building relationships with PC makers. And, more importantly, Intel invests in making sales easier for the PC vendors that use their chips.

John Harris, former head of Panasonic's U.S. PC business told me: "Intel was extraordinarily generous and helpful. If we put the 'Intel Inside' logo on our ads, they'd reimburse us between 50% and 70% of both the cost to produce and the cost to run the ad." Harris said that it was Intel's willingness to spend big bucks to make its partners successful that made the difference.

Rod Keller, formerly head of Toshiba's U.S. PC business (and now a top exec at Cisco) told me: "A PC company may be able to save a few dollars buying from AMD rather than Intel. But Intel is willing to offer tens of millions in marketing dollars to drive demand which offsets the potential savings in PC manufacturing costs. While I was at Toshiba we entered into a conversation with AMD but decided that we could make more money if we maintained an exclusive position with Intel. "

I don't know about you, but that just sounds like Intel is outselling AMD, by using its own marketing dollars to help its their partners successful. Frankly, I fail to see what's wrong with that.

Of course, it could be that Intel has since strayed from that path and, if so, I'm sure we'll hear all about it. However, until I hear differently, I'm going to have go with my gut, which is that Intel is just better at selling and marketing than AMD. Nothing against AMD. Their execs are smart guys. But Intel... They're one of the hottest companies on the planet when it comes to creating product preference.

The New York lawsuit is supposedly based upon the European lawsuit, which is (on the surface) completely absurd, since European PC manufacturers make, what?, about 1 percent of the PCs on the planet. It seems perfectly clear to me that Cuomo hopes to follow in Spitzer's footsteps and use a high-profile antitrust suit to build national recognition.

But Intel isn't Microsoft. Microsoft's operating system DOES lock out other technologies. CPU chips from other manufacturers are 100 percent compatible. There's no technological lock out, so all Intel is doing is using it's deep pockets to fund marketing efforts and offer CPUs at lower prices than the competition. They can do that because they have economies of scale and, frankly, no competitor has managed to establish a clear reason to dump them.