The Cost of Being Too Good

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At a time when many companies are struggling to stay profitable, the world’s largest computer processor manufacturer recorded a net profit of $1 billion in its second quarter. Despite this impressive feat, however, the corporation reported a quarterly loss of $398 million, the first loss it has experienced in 21 years.

What accounts for the $1.4 billion difference?

It is now in the pockets of European bureaucrats. In May, the European Union fined Intel $1.45 billion for violating antitrust laws. The EU accused Intel of “predatory pricing,” an ominous euphemism for offering products more cheaply than its competitors.

Intel plans to appeal the fine and rightfully so. Intel did not send thugs to threaten customers against purchasing computer chips from its rivals. All it did was make an offer to retailers and manufacturers that they were free to refuse. The reason most of them accepted the offer is because Intel products are so popular amongst customers. Indeed, as Jonathan Zuck, president of the Association for Competitive Technology, noted, “For the past 20 years, the microprocessor industry has delivered more innovation, more speed, more functionality, and lower prices. Over the past 10 years, the average price of Intel’s PC microprocessors has dropped by 60 percent.”

Who will benefit from Intel’s punishment? Consumers were already overwhelmingly benefiting from Intel’s superb quality of products and low prices. By issuing this fine, the EU has only made it more difficult for Intel to do what made the company so successful in the first place: continuous improvement and innovation, accompanied by a decrease in prices. With the additional $1.45 billion, which Intel rightfully earned, who knows what new technology it might have been able to create, enhancing our computing experience? Rather than using their profits to fund ventures which would bring greater value to consumers and enable Intel to fund further innovation, this money is now in the idle hands of the EU.

Neither will this course of action help investors or employees. During the second quarter of last year, Intel equated its net profit to 28¢ per share, while this quarter it suffered a loss of 7¢ per share. This could substantially harm investors, especially those who hold Intel stock in their 401(k) plans. Likewise, the company already announced a staggering number of layoffs earlier this year. Only time will tell how many more employees will experience freezes in their annual raises or be laid off as a result of this loss.

All of this highlights the perverse injustice of European bureaucrats who arbitrarily turned Intel’s healthy profit into a painful loss.

Perhaps the most severe damage of this fine will be the message the European Union has sent to Intel: don’t be too successful- don’t create products so superlative that other companies cannot possibly match the incredible amount of time, study, and brilliance that you have put forth- don’t offer your customers too good a deal. Next time, Intel will think twice about creating a product that is too good- which is too bad for the rest of us.

Posted by on July 19, 2009. Filed under Business & Economics, Science & Technology, Summer 2009. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry
  • Daniel J Casper

    When a person steals something in secret from another, it is called theft. When he does so at the point of a gun, it’s called armed robbery. This is not a legal proceeding – it’s a hold-up!

  • Daniel J Casper

    When a person steals something in secret from another, it is called theft. When he does so at the point of a gun, it’s called armed robbery. This is not a legal proceeding – it’s a hold-up!

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  • John Galt

    That’s right, punish those who succeed so that those who fail can be rewarded. How else are governments supposed to save business that are no longer viable? Heaven forbid letting them die. This all seems eerily familiar, like something I read in a book…

  • John Galt

    That’s right, punish those who succeed so that those who fail can be rewarded. How else are governments supposed to save business that are no longer viable? Heaven forbid letting them die. This all seems eerily familiar, like something I read in a book…

  • Matt Chu

    Have you people ever heard of barriers to entry and why fostering competition in the market should be supported?

  • Matt Chu

    Have you people ever heard of barriers to entry and why fostering competition in the market should be supported?

  • Daniel Casper

    By what right does a business who wishes to enter a market penalize a computer who is succeeding? If this premise were actually applied, any successful business would be held at gun point by the government on behalf of any man who wishes to get a cut of the market. They would be penalized, not for their failures, but for their success. The most successful men would be dragged down to equality with the less successful men. Why then should you expect any competition? It’s not necessary – the government would handle competition for them.

    What you are endorsing Mr. Chu, is that the government decide who can and cannot do well in business. By what standard? The standard of anyone’s claim to make a profit – at the expense of the rights of business owners to keep their profit. If you, Matt Chu, took money from a successful business in order to enter a market that would be theft. It’s not any different when the government does so – it just involves the police and the courts, instead of an individual thief.

  • Daniel Casper

    Excuse my typos. Should read business instead of computer in first sentence. Thinking of those poor folks at Intel.

  • Daniel Casper

    By what right does a business who wishes to enter a market penalize a computer who is succeeding? If this premise were actually applied, any successful business would be held at gun point by the government on behalf of any man who wishes to get a cut of the market. They would be penalized, not for their failures, but for their success. The most successful men would be dragged down to equality with the less successful men. Why then should you expect any competition? It’s not necessary – the government would handle competition for them.

    What you are endorsing Mr. Chu, is that the government decide who can and cannot do well in business. By what standard? The standard of anyone’s claim to make a profit – at the expense of the rights of business owners to keep their profit. If you, Matt Chu, took money from a successful business in order to enter a market that would be theft. It’s not any different when the government does so – it just involves the police and the courts, instead of an individual thief.

  • Daniel Casper

    Excuse my typos. Should read business instead of computer in first sentence. Thinking of those poor folks at Intel.

  • John Galt

    Excuse me Mat, but AMD (the only meaningful competitor) is not exactly entering the market. they are major player themselves. If some new company comes along and offers a superior product (not bloody likely given the massive research costs that go into innovation for CPU’s) they shouldn’t need any assistance, the product should sell itself. Of course, Intel or AMD would almost certainly buy them before that happened. Intel did nothing wrong, unless being better than your peers is a crime.

  • John Galt

    hmm, apparently my typing is as poor as yours Daniel, thats what happens at 3am after too many Ceasars. mmmmm.

  • John Galt

    Excuse me Mat, but AMD (the only meaningful competitor) is not exactly entering the market. they are major player themselves. If some new company comes along and offers a superior product (not bloody likely given the massive research costs that go into innovation for CPU’s) they shouldn’t need any assistance, the product should sell itself. Of course, Intel or AMD would almost certainly buy them before that happened. Intel did nothing wrong, unless being better than your peers is a crime.

  • John Galt

    hmm, apparently my typing is as poor as yours Daniel, thats what happens at 3am after too many Ceasars. mmmmm.