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April 21, 2004 2:36 PM








(Updates an item from 1250 GMT with additional comment from Intel, the European Commission and the Swedish government)

BRUSSELS -(Dow Jones)- Regulators are investigating whether European governments illegally favored Intel Corp. (INTC) chips in public procurement, the European Union Commission said Wednesday.

The probe was opened after complaints from Intel's competitors. Although E.U. officials wouldn't give names, Intel's largest competitor is Advanced Micro Devices Inc. (AMD). AMD has a strong presence in Europe, producing its microprocessor wafers in Dresden, Germany, where it is building a second plant.

"Under public procurement rules, you may not say computers must contain chips by particular manufacturer," said E.U. spokesman Jonathan Todd.

Government agencies are free to specify what standards they require for their IT systems when putting out bids for tender. But Todd said that such specifications - such as listing the "clockrates" at which microchips operate - mustn't exclude makers of similar equipment from consideration. He warned that such specifications can be used to undermine "open and competitive procedures" in public bids.

While less important than the recent E.U. antitrust crackdown on Microsoft Corp. (MSFT), which resulted in a record EUR497 million fine, the case resembles similar attempts by Microsoft's Linux competitors to abolish any public-procurement requirements for proprietary software standards. In recent months, E.U. governments have been taking the side of open software standards.

AMD declined to comment. Intel said it is evaluating the E.U. letters sent and their potential impact on its customers in Europe. Spokesman Chuck Malloy said the company is also investigating how the Intel-only requirements came about.

"Based on our understanding, there is no allegation of wrongdoing on Intel's part," Malloy said. E.U. officials also refrained from accusing Intel of malfeasance and said they didn't know exactly why governments put Intel-only clauses in bid requirements. They also said they didn't know how large the total number of contracts involved could be. Analysts said the Intel-only contracts came about as a way of standardizing hardware.

"There are reasons why governments would want to standardize on an IT platform - the administration of management of computers become less expensive the more homogeneous the environment is," said Jeremy Donovan, an analyst with Gartner in New Jersey. "This is quite common."

Officials did say they were focusing on two heavyweight countries - Germany and Italy. Both countries have received a request to provide information within two months. Regulators then must decide whether to bring court cases to change the practices.

Five other countries are being probed - Austria, Belgium, Finland, France and the Netherlands. But these countries haven't yet received formal requests for information. The European Free Trade Association is also looking at Norway.

As a model for fixing the problem, E.U. spokesman Todd cited Sweden. When regulators complained that the northern Swedish city of Luleaa required Intel processors by name, the government in Stockholm sent a warning to the municipality, which agreed to change its future procurement habits.

"Luleaa municipality admitted after European Union complaints that it was mistaken in its technical description of computers referring directly to the brand "Intel Pentium IV," Sweden's national board for public procurement published in its March newsletter. "The municipality said that it was possible to design demand specifications in a more neutral way and decided to cancel the bid process" and "in the future, bid requests must be designed in a way that references to a specific brand or product origination."

If other countries do the same, Todd said the investigations will be dropped.

"We hope to resolve this in satisfactory manner without further infringement," he said. "As ever with public procurement, we want open and competitive procedures" so "European governments get value for money."


-By William Echikson,Dow Jones Newswires;32-2-285-0134; william.echikson@dowjones.com

(Steve De Bonvoisin, James Kanter and Don Clark contributed to this report.)


(END) Dow Jones Newswires

04-21-04 1434ET

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