Intel: Monopolies may be vilified in the popular imagination, but there are few businesses that don’t want one. So the European Commission’s finding that US chipmaker Intel acted in an anticompetitive manner – and the E1bn fine it levied for doing so – might appear an acceptable cost of business to some shareholders. But that assumes Intel can fully reap the benefits of its quasi-monopoly. Trouble is, Intel isn’t growing much, and increasing antitrust scrutiny is likely to become a bigger headache.
Intel sells about 80% of all microprocessors. But its revenues have expanded a mere 1% a year since 2000. This is partly because customers aren’t shelling out as much for new, faster chips. Problems dissipating heat have placed a limit on individual chip speeds. Intel has responded by putting multiple microprocessors on a chip, but software that takes full advantage of this design is difficult to develop. So customers see little reason to bother.
Nonetheless, Intel’s business is solidly profitable. Operating margins were 23% last year, which is attractive, but not atypical for the company – they were 31% in 2000, for example. The combination of mature revenues and static margins explains investors’ tepid view of Intel’s stock. Its total return over the past 12 years is zero.
Now throw increasing regulatory scrutiny into the mix. Intel is fighting accusations of monopolistic abuse in multiple jurisdictions. The EU decision may increase the likelihood that others follow – and that the new US administration, which has promised more vigorous enforcement, takes up the cause.
Preventing a company from acting in an anticompetitive manner is great for consumers. It isn’t for the company. If Intel’s revenues and operating margins remain relatively stagnant, and regulators forbid it to throw its weight around, Intel will begin to look more like a utility than a dynamic technology company.
