Intel hits short circuit -- job cuts, federal suit

SEATTLE POST-INTELLIGENCER STAFF AND WIRE SERVICES

Business and legal woes tag-teamed Intel Corp. yesterday. The chip giant announced it will shut down its computer-assembly operation at DuPont and phase out more than 600 jobs by January 1999, just as regulators said they are preparing a major antitrust suit against the company.

Intel will help the assembly workers find jobs within or outside of Intel, and will continue to expand its DuPont research and development operation, which now employs about 1,200 people, spokesman Bill Calder said late yesterday.

But weaker-than-expected chip demand and falling prices in the hotly competitive computer market hurt Intel's earnings and forced it to take belt-tightening measures, including the changes at DuPont.

"Because of competitive pressures in the industry, we're making the prudent decision to do the best thing overall for the business, which is to take these manufacturing operations and outsource them," Calder said.

The company had announced last month that, due to "disappointing" quarterly earnings, it would reduce its work force by about 3,000 people, mainly but not solely through attrition. At the time, they did not identify specific company operations that would be affected.

When Intel opened the DuPont facility in 1996, thousands of people attended a job fair in Tacoma to apply for jobs starting at $18,000 to $23,000 a year assembling computers for other makers.

Close to 650 assembly jobs will be phased out, Calder said, but the company will make a strong effort to find jobs for them within Intel or at other companies, or, failing that, will offer generous severance packages.

"We're going to develop a really aggressive program aimed at helping those people," he said.

In an unrelated development yesterday, lawyers involved in the investigations said the Federal Trade Commission is preparing an antitrust suit charging Intel with abusing its position as the monopoly manufacturer of microprocessor chips for personal computers and bullying some computer manufacturers.

Charges are expected within seven days, the Ziff-Davis news network reported.

The suit will accuse Intel of selectively withholding key technical information about its microprocessor chips from the computer manufacturers with which Intel is involved in patent and related product disputes. Without that data, the manufacturers are unable to design new products.

The suit would be the second front in the federal government's assault on "Wintel," as the personal computer juggernaut built around Microsoft Corp.'s Windows operating system and Intel's microprocessors is known. Intel's processors and Microsoft's operating systems are the brains and nervous system that run 90 percent of the world's personal computers.

The Justice Department and 20 state attorneys general filed antitrust actions against Microsoft May 18. A federal judge in Washington combined those cases and they are scheduled to be heard in September.

Later this year, the FTC lawyers said, the FTC may file even more charges against Intel, accusing the company of using predatory pricing and contract provisions to expand its monopoly position and to squeeze out competitors. Those are the same general complaints filed against Microsoft last week.

As early as Friday, the FTC staff is expected to forward its recommendation for the antitrust suit to the full commission for approval. The commissioners are expected to vote to move forward with the lawsuit a week or 10 days later.

Intel spokesman Chuck Mulloy in Santa Clara, Calif., declined to comment in detail on the potential antitrust litigation, but said, "We are cooperating with the (FTC) fully. We are very sensitive about antitrust enforcement, and at the end of the day, once the appropriate processes have been concluded, we believe they will determine that we behaved lawfully."

The lawyers involved with the investigation said that Intel executives had attended meetings with FTC staff members in Washington earlier this month in an attempt to avert the lawsuit. But the Intel executives had not made any significant concessions, in the view of government officials, and insisted that all their business practices were lawful.

The FTC and the Justice Department have equal jurisdiction to enforce the nation's antitrust law, and the two agencies decide between themselves which will handle each new case. Since Justice was already preoccupied with the Microsoft case, the FTC took the Intel case.

At the heart of the government's case, one lawyer said, is the charge that "a monopolist cannot cut off a customer who has no other alternatives in the market, causing him severe economic harm, just because they are having a dispute."

The proposed lawsuit charges that Intel illegally retaliated against four companies, including Digital Equipment Corp. and Intergraph Corp., a maker of computer work stations. Intergraph and Digital filed their own civil lawsuits against Intel last year. In a preliminary ruling last month a U.S. District Court in Birmingham, Ala., found that Intel had violated antitrust law in the Intergraph case.

Intergraph and Intel were caught in a patent dispute. As leverage in that fight, the proposed federal suit will charge, Intel refused to give Intergraph the product data books that set out the specifications for Intel's Pentium II family of microprocessors.

Since those chips serve as the brain of a computer, manufacturers must have the information to design their new machines, and holding back the data "is a nuclear weapon for a monopolist," one FTC lawyer said.

In that case and in other public statements, Intel said it has the right to supply or withhold its own proprietary information according to its own business interests. But the government will argue that a monopolist does not have that choice.

If the FTC eventually rules against Intel, the company can appeal directly to the U.S. Court of Appeals.

P-I reporter Warren Wilson and The New York Times contributed to this report.