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NY AG Probes Intel Marketing Practices

New York Attorney General Andrew Cuomo is investigating possible violations of state and federal antitrust laws by Intel Corp., the world's largest manufacturer of computer microprocessors.

A Cuomo spokesman said subpoenas were being delivered Thursday seeking information on whether Intel coerced customers to exclude Advanced Micro Devices Inc., known as AMD, from the market for a specific computer processing unit.

Cuomo said his preliminary review showed a need for a full investigation.

The subpoenas seek data about Intel's pricing strategies and whether Intel penalized computer makers, cut off competitors' distribution channels, and improperly paid customers for exclusivity.

"Our investigation is focused on determining whether Intel has improperly used monopoly power to exclude competitors or stifle innovation," Cuomo said. "We will also look at whether Intel abused its power to remove competitive threats or harm competition in violation of New York and federal antitrust laws."

Intel said it has broken no laws, despite several legal actions being undertaken around the world that Intel believes are driven by AMD, its closest competitor.

"We believe our business practices are lawful," said Intel spokesman Chuck Mulloy. "We also believe the microprocessor market is a competitive market and is functioning the way one would expect a competitive market to function."

He said the concerns Cuomo raised in his press release mirror a private lawsuit AMD filed in 2005 in federal court in Delaware. That case is scheduled to be in court in April 2009, Mulloy said.

Intel agreed to a decree in Japan, Mulloy said, but it denied charges against it, and they were never adjudicated. AMD also has two private lawsuits under way in Japan, according to Mulloy.

The company also filed a response this week to the European Commission's statement of objections, which concluded a six-year investigation, Mulloy said. In July, the European Union charged Intel with violating antitrust rules by selling its chips below cost to strategic customers, among other practices.

Intel is responding to preliminary charges by a regulator in Korea, Mulloy said.

"In all cases, we denied we violated any laws," he said.

A spokesmen for AMD declined comment.

At issue in Cuomo's probe is whether AMD has a fair chance to supply its X86 computer processing units for desktop and laptop computers and servers.

Cuomo says Intel commanded 80 percent of the $30 billion market.

AMD's Delaware lawsuit claims Intel bullied major customers -- PC makers like Dell Inc. -- into making exclusive deals and offering secret rebates. AMD alleges anticompetitive practices in several countries, including Britain, Germany and Japan.

Intel, which commands three-quarters of the worldwide microprocessor market, has denied AMD's allegations and defends its business practices as legal and beneficial to consumers.

U.S. regulators appear to be resisting a formal probe of Intel's marketing practices, despite requests from members of Congress and AMD.

In August, Sen. Charles Schumer and Rep. Kirsten Gillibrand asked the Federal Trade Commission to investigate the company. A letter to the FTC from the two New York Democrats said: "If the allegations against Intel are true, the potential harm to consumers could be profound."

In a response in September, the FTC told legislators the agency is barred by law from disclosing investigations. Brian Fallon, a Schumer spokesman, said last year the agency appears to be "slow-walking" the issue.

Schumer has met with AMD representatives about the company's plans to build a $3 billion semiconductor plant in upstate New York, a project strongly backed by the state Legislature and Democratic Gov. Eliot Spitzer.

Mulloy wouldn't comment when asked if he thought the support by New York lawmakers of AMD and now the investigation by Cuomo had anything to do with AMD's proposed factory for New York state, near Albany.

"I can not speculate about the proposed factory in New York and this decision," Mulloy said.

Though AMD is the world's second largest maker of microprocessors, it's a much smaller company than Intel and has been struggling in recent years.

AMD's stock has taken a beating the past two years amid fears the Sunnyvale, Calif.-based company has been losing some of its competitive edge against Intel because of debt from a costly acquisition and because its technology is aging.

In October, AMD posted a loss of nearly $400 million for the quarter that ended in September. Intel said it earned $1.86 billion in the same period.

Last month, AMD CEO Hector Ruiz said the chip maker is committed to breaking even in the second quarter of 2008 and returning to profitability in the third.

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