Pure Monopoly 325The most formidable challenge has come from Advanced Micro Devices, Inc.
(AMD), which succeeded in developing compatible microchips while avoiding
Intel’s patents. Today, AMD competes head-to-head with Intel in developing
technologically advanced chips, and has increased its market shares to between
15 and 20 percent for chips used in laptops and netbooks.
In response to these challenges, Intel has not been a quiet or complacent
monopolist. It repeatedly has entered into litigation to protect its patent rights.
In an antitrust action, the European Commission found that Intel restricted
competition by offering rebates to computer makers who used fewer AMD chips.
The company launched the “Intel Inside” marketing and advertising campaign
aimed at convincing computer purchasers that its chip is superior to the clones.
In segments where new competitors pose the greatest threat, the company has
sought to preserve its market share by aggressively cutting chip prices, even on
its most advanced chips. In 2010, Intel spent some $5 billion for new factory
expansion and increased its annual R&D spending to over $6 billion.
By far its most important response has been to accelerate the pace at which
it develops and introduces new chips. Remarkably, the company has been able
to keep pace with Moore’s law—the prediction that the number of (ever shrink-
ing) transistors fitted on a chip would double every 18 months, driving a dou-
bling of computer power as well. Both Intel and AMD raised the 32-bit standard
by introducing 64-bit chips. Both have split the computing chores among mul-
tiple cores (first dual, then quad cores) on the same chip, thereby increasing
efficiency and reducing energy consumption.
In recent years, Intel has pursued a new strategy of advanced chip special-
ization—developing separate chips for laptops, home entertainment systems,
WIFI and mobile gadgets, and servers. In 2007 it embarked on production of
flash-memory chips. In 2011, it announced the development of its most pow-
erful chip, the Finfet 3-D transistor design, which builds transistors vertically
rather than on a flat surface. Intel relies on continuous innovation to keep a
“monopoly” step ahead of the competition. The company knows that today’s
dominant chip will quickly be challenged by competitors’ clones, causing prices
and profits to erode. Indeed, Intel expects today’s best-selling chip to be dis-
placed by the company’s next and newest chip. As a company spokesperson
put it, “We eat our young.”
While Intel has been the successful master of new technologies, it has been
unable to control the emergence of new chip markets. Currently, Intel is an
“also ran” in the exploding market for chips used in mobile devices such as
smart phones, MP3 players, and tablet computers. These devices require cheap,
quick chips that consume little power (so as to deliver maximal battery life)
and produce minimal heat. New firms, such as ARM, dominate the mobile mar-
ket by designing specialized chips, whereas Intel’s chips deliver superior com-
puting power but at the cost of higher power consumption. Currently, Intel is
making its bid for the mobile market with a new family of powerful, but less
power-hungry processors called Atom.c08Monopoly.qxd 9/29/11 1:31 PM Page 325