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FTC's warning to Intel unit reveals huge rebate system
The Asahi Shimbun

The Fair Trade Commission's warning Tuesday to the Japan subsidiary of semiconductor giant Intel Corp. shed light on the various ways Intel dished out huge rebates to computer makers.

Competing fiercely with U.S. rival Advanced Micro Devices Inc. (AMD), Intel offered discounts to computer companies willing to put Intel's central processing units (CPU) in their products.

In some cases, Intel halved its CPU prices, sources said.

According to sources close to the FTC investigation, Intel offered three basic types of rebates.

One involved what were usually called a ``special price,'' which was a simple, but large, discount on the CPUs.

Another was an ``advance discount'' given before a change in CPU prices.

In the third method, Intel paid cash to computer makers and described such payouts as ``new computer model development costs.''

Because Intel CPUs were originally priced somewhat higher than AMD processors, the general policy was to lower Intel's CPU price to match AMD's.

That meant Intel CPUs costing from 3,000 yen to about 50,000 yen per unit originally were discounted by between several thousand yen to several tens of thousands of yen.

Intel set the price cuts. Prices also varied depending on the computer maker buying the CPUs, sources said.

The prices set for each manufacturer were closely guarded secrets.

No formal contracts were signed that described the discount being given. To determine what verbal promises were made between Intel and the computer makers, FTC investigators were forced to search a large database of e-mail messages and the minutes of meetings held by Intel officials.

Intel has argued that the discounts were not anti-competitive because they were presented as price targets. Intel said it was up to the manufacturer to buy Intel's CPUs.

Sources said that reasoning has meant the discounts are still being offered, despite the FTC's call for a stop to the practice.

Intel could challenge the FTC warning, taking the case to the equivalent of legal proceedings. However, should it do that, Intel would likely be forced to divulge details of the discount systems it set up with each manufacturer.

Software giant Microsoft Corp. is challenging an FTC warning issued last July over a controversial licensing clause.(IHT/Asahi: March 9,2005)




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