The Chips Are Down at Intel

The Chips Are Down at Intel

July 01, 1998

[B]ureacracy is imbued with an implacable hatred of private business and free enterprise. But the supporters of the system consider precisely this the most laudable feature of their attitude. Far from being ashamed of their anti-business policies, they are proud of them. They aim at full control of business by the government and see in every businessman who wants to evade this control a public enemy.

— Ludwig von Mises, Bureaucracy

Andy Grove of Intel was Time Magazine’s "1997 Man of the Year." In 1998, he’s the Federal Trade Commission’s "Man to Fear."

If the FTC’s antitrust campaign against Intel succeeds, Grove, who recently stepped down as the CEO of Intel, will be remembered not as a productive marvel who helped turn the rest of us into the same, but — along with Bill Gates — as one of the digital age’s twin Robber Barons.

Intel’s chip sales comprise about 90 percent of the world market, defined by number of microprocessors inside personal computers. Yet the company is surprisingly vulnerable, hardly the fortified monopolist the FTC implies.

One reason for Intel’s increasing vulnerability is that most silicon chips nowadays – about 15 billion of them — are found everywhere except in personal computers. You’ll find chips in automobiles, coffeemakers, rice cookers, watches, cell phones, stereos, cameras, calculators — in appliances of every imaginable sort. Silicon chips even flush the toilet and turn on the sink at airports and hotels. One needn’t touch a thing. Few of the chips in these non-PC applications are Intel’s, whose desktop versions increasingly comprise just one subset of the burgeoning chip market.

As particle physicist Michio Kaku noted in his remarkable book Visions, "By 2020, microprocessors will likely be as cheap and plentiful as scrap paper, scattered by the millions into the environment, allowing us to place intelligent systems everywhere."

Such devices will increasingly become linked to one another, causing our surroundings to seethe in a torrent of inanimate, digital communication. In the "intelligent" future, your house, monitoring Internet weather services without your involvement, will adjust the thermostat in anticipation while the refrigerator places an order for groceries.

Intel’s relative absence from this blossoming non-desktop market is more than enough to topple its dominance. While microchips rain down around us, Intel remains mired in its self-imposed desktop prison, stewing among yesterday’s word processing and spreadsheet packages.

Yet even in the narrow realm of the desktop, the FTC cannot dance around the fact that credible alternatives to Intel plainly exist. Among several alternative chipmakers, consumers have options like the Macintosh that sits on my desk at home. Macs run on Motorola’s chips, not Intel’s.

It bears repeating. You can buy a Mac today — even if you’re an antitrust lawyer at the FTC. No, don’t even get up: just dial 1-800-795-1000 or click on www.apple.com and they’ll ship it to you.

In response to such competing platforms, of course, consumers have chosen to make Intel the runaway success it is, and Apple the marginal player it is. The FTC should concur that there’s nothing sinister about customer choice.

Furthermore, the oft-pitied computer makers purported to be subject to the whims of Intel are hardly 98-pound weaklings – a fact they demonstrated recently by demanding and getting a 33 percent price cut on 233-megahertz Pentium IIs.

No one can stop computer makers dissatisfied with Intel from striking better deals with competing chipmakers — like IBM, Motorola, National Semiconductor, Advanced Micro Devices and Sun – if they desire. All market participants have access to the same capital markets as Intel. Indeed, chipmaker Cyrix mocked the famous "Intel Inside" slogan by pasting those very words on a mock-up tombstone.

In defiance of all this, FTC Bureau of Competition director William Baer made the patently absurd observation to the press that computer makers "have no other alternative (than) the Intel microprocessors they use in their leading-edge systems."

Like all antitrusters with tunnel-vision, Baer disregards the fact that no company operates in a vacuum. Intel chips won’t work by themselves; they need a computer platform to run on. If unhappy computer makers decide not to sell computers with Intel chips inside, Intel earns zip. Computer makers can thus police Intel without a "Bureau" – indeed, they have to, in the everyday course of business. So much for Intel’s "monopoly."

As if to underscore the wispy nature of "monopoly" in a free market, recent missteps by Intel in the face of swirling consumer demands have alarmingly aided competing chipmakers.

Intel’s signature business model, that of selling consumers ever-faster chips, has now hit a speed bump. A paucity of software to take advantage of all the screaming muscle power Intel delivers, and a corresponding consumer embrace of "under-$1,000" computers with chips designed by Intel’s hungry competition, took Intel by surprise.

The FTC’s desire to pounce in defiance of Intel’s increasingly obvious vulnerability to careening market forces contributes to the impression that the agency fundamentally doesn’t care about anything other than taking down a high-profile target whose name everyone knows. It is not possible to dismiss the idea that the FTC hopes to one-up the Justice Department’s Microsoft investigation.

It’s up to others to determine why individuals join make-work bureaus with imagined "public purposes," buzzing ceaselessly and noisily about, yet contributing nothing of relevance to any of the technical and economic advances we rely upon to enrich our lives. Perhaps unspoken awareness of that fundamental worthlessness is one factor motivating "antitrust" agencies to tear down the successful with ever-increasing insolence.

Whatever the motivation, monopoly abuses by today’s increasingly strident "trustbusters" must stop. The FTC needs to be taught that its antitrust escapades are not helping consumers, are not needed and have no purpose in a churning marketplace that polices itself everyday before the FTC even gets out of bed.

Wayne Crews (cwcrews@cei.org) is CEI’s Director of Competition and Regulation Policy.