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.
