Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Andeveron who wrote (58749)	6/25/1998 1:33:00 AM
From: Paul Engel	Read Replies (2) \| Respond to of 186894

Intel Investors - A Letter to the Wall Street Journal re: Intel Here's an interesting perspective of the FTC action against Intel Paul {====================} copyright (c) Wall Street Journal Subject: FW: LETTERS TO THE EDITOR - WALL STREET JOURNAL June 17, 1998 How Intel's Good Deeds Get Punished By HOLMAN W. JENKINS JR. The story of Intel and the FTC is the story of a government agency desperately seeking relevance. We almost feel sorry for Robert Pitofsky, head of the Federal Trade Commission. He earned his stripes with long and reputable service as an academic antitrust expert. But he's running an agency that places value on chasing headlines and trying not to look like the retarded cousin of the Justice Department's antitrust division. We won't recount its harassment of Judy Altmeyer, a Pittsburgh store owner, because not enough of her rejected job applicants had filed complaints. We won't go back over its trumped-up reasons for blocking an office-supply merger or its dragged-out review of the Time-Warner deal. These were the actions of a silly agency looking for reasons to meddle if it could get away with it. Now we have its latest sally, the complaint against Intel. The usual commentators stroke their chins thoughtfully and approvingly. Some even applaud the FTC for scratching up a new legal theory under which to drag busy executives into court. Says a former FTC nanny about a present FTC nanny: "Bill Baer went to bat for us. He wanted to get big cases for the commission, and when it came to expanding our jurisdiction, he was aggressive." That certainly applies to the Intel complaint. The agency itself acknowledges that Intel's behavior would be perfectly rational and responsible if undertaken by any other company. It crosses an imaginary line only if the FTC can make the imaginary label "monopolist" stick. The agency must pray that the ever-pliable theories of antitrust can perform this trick, depending on the mood of the judge. But if the FTC wins, the world will not be a safer place for the "innovation" it claims to be protecting. The complaint accuses Intel of using its "monopoly" to punish companies that try to assert their patent rights. It goes further, saying that this discourages innovation, including innovation that might be directed at competing with Intel. Presto, the antitrust laws may be invoked. Too bad the FTC didn't bother to do better research before issuing its complaint. One key bit of evidence revolves around a "victimized" company called Intergraph, which designs specialized workstations based on Intel's microprocessor. Once upon a time Intergraph made its own microprocessor, but as a trade magazine recently put it, "the Clipper is now no more than a distant memory to most people." A sad fact of Silicon Valley life is that companies are constantly dragging out their old patents to see if they can pillage a competitor in court. And so last year Intergraph began writing letters to rival users of Intel chips accusing them of cribbing from the Clipper. Intel intervened and sought to settle the issue the time-honored Valley way, by offering a cross-licensing agreement. Intergraph turned the deal down, and Intel stopped sharing its own technical secrets with Intergraph. Why would Intergraph risk valuable cooperation with Intel over a moot patent issue? Because the company sadly had already locked itself into a losing strategy, trying to sell fancy workstations against a tide of cheaper PCs. It hasn't made a profit since 1992, and regularly bleeds $70 million or so a year. Why not try to salvage something with a lawsuit? It worked for Digital Equipment, also portrayed in the complaint as a "victim." Last year, after pouring money into its own Alpha chip, which failed because of marketing miscues, Digital tried to socialize its losses by suing Intel for patent infringement. CEO Robert Palmer cited a quote in the Journal by Intel's Craig Barrett: "There's nothing left to copy." This supposedly proved that Intel made an open practice of stealing ideas. But the authoritative Microprocessor Report called the charge "preposterous." As everyone familiar with the chip business understood, the Intel executive was referring to the accepted practice of recreating mainframe architecture on silicon. Digital's chip didn't fail in the marketplace because Intel stole its speedy design. It failed because Intel's Pentium chip was compatible with the world's most popular software and Alpha wasn't. That left only questions of accidental overlap, the classic stuff of a nuisance suit. But Digital got what it came for. Rather than spend a lifetime in front a judge, Intel bought out Digital's Alpha factory for $700 million, ending its dismal career in the chip business. Soon thereafter, Digital, the industry's perennial sob sister, surrendered its building pass and was acquired by Compaq. These types of lawsuits aren't going away, even if the FTC would mind its own business and not encourage them. The technology moves too fast, and the patent system grinds too slowly. Intel used to be the worst offender. Andy Grove once wasn't above running to Washington to hobble Japanese competition in the memory chip business. Intel has grown up since then, something the FTC should consider doing. Mr. Grove realized that his real competition wasn't Japan or any other chipmaker, but a daunting cost curve. A new chip plant costs $5 billion. The only way to recoup that investment is to get the whole hardware and software industry pulling together to create new machines that a large enough public wants to buy. The break came in 1995, when Intel ended a decade of legal feuding with rival chipmaker AMD on statesman-like terms. Nowadays when the company throws its weight around, it usually does so to restore the old Silicon Valley ethos, which favored cross-licensing. This isn't a bad role for a firm whose "monopoly" arises from the natural circumstances of a rapidly growing industry. But the FTC has other ideas. It says Intel should litigate, litigate, litigate rather than exercise its leadership this way. Funny, when the FTC looked into these issues a few years ago, it found no problems. The tune changed only when it discovered itself competing with Justice's antitrust shop for funding and prestige. Justice made a splash by landing a big case with Microsoft, and the FTC wants something to do too. Here's a way for both to get busy: Why don't they compete to see which can do a better job of sitting on its hands and letting more relevant institutions--like Intel--get on with their business?