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Nvidia Receives Subpoena in Federal Antitrust Probe (Update3)
By John Stebbins
Dec. 1 (Bloomberg) -- Nvidia Corp., the third-largest maker of graphics chips for computers, received a subpoena from U.S. Justice Department antitrust prosecutors who are conducting a criminal price-fixing investigation of the industry.
The subpoena made no specific allegations, Santa Clara, California-based Nvidia said today in a statement. The company said it's cooperating. Nvidia shares fell $1.45, or 3.9 percent, to $35.54 at 4 p.m. New York time in Nasdaq Stock Market composite trading.
Federal investigators may be looking at the fact that Nvidia and larger rival ATI Technologies Inc. have similar pricing among some competing product lines, Doug Freedman, an American Technology Research analyst, said today in an interview. Advanced Micro Devices Inc., which bought ATI in October for $5.4 billion, was subpoenaed Nov. 29.
``When looking on the outside, it does seem suspect that the prices are similar,'' Freedman said. The Greenwich, Connecticut-based analyst rates the shares of Nvidia and Advanced Micro ``buy'' and doesn't own them.
ATI is the second-largest maker of computer-graphics chips behind Intel Corp. The combination of Advanced Micro and ATI puts the merged company in direct competition with Intel and Nvidia for sales of graphics chips. Intel hasn't received a subpoena, said Chuck Mulloy, spokesman for the Santa Clara, California-based company.
Probe Confirmed
Justice Department spokeswoman Gina Talamona said the agency ``is investigating the possibility of anticompetitive practices involving the graphics processing units and cards industry.'' She declined to comment on subpoenas to specific companies.
Nvidia spokesman Michael Hara said the graphics industry is ``controlled by outside forces.''
``Intel controls how the hardware works and Microsoft controls how the software works, and we have to work within those parameters,'' he said, referring to Microsoft Corp., the world's largest software company.
Hara said Nvidia is ``playing by everyone else's rules,'' and that the Justice Department wants to ``make sure the playing field is level and fair.'' He said he couldn't be more specific about the information requested.
Back to 1990s
``We don't know a lot -- only that they asked for a lot of documents that go back to the late 1990s,'' Hara said. ``It's really broad in scope.''
Drew Prairie, an Advanced Micro spokesman, declined to comment beyond saying the company received a subpoena.
Unlike ATI and Nvidia, Intel doesn't make stand-alone graphics chips, Mulloy said. Its graphics semiconductors are combined with its other products. Intel also competes with Advanced Micro in computer processors.
Nvidia has been beating ATI to market with faster graphics chips and other technologies, Freedman said. ``It usually goes that the technology leader gets to set the price, and followers try to meet that price,'' he said. ``But, if you look closely, Nvidia's profit margins on those products are usually better than ATI's.''
U.S. antitrust investigators have examined the market for memory chips used in computers and opened a probe in October into possible price-fixing for another type of memory chip used in cell phones, Freedman said.
In the second quarter, Intel got 40 percent of global sales of graphics chips, according to Tiburon, California-based Jon Peddie Research. ATI had 28 percent, and Nvidia had 20 percent.
In sales of stand-alone graphics chips used in desktop computers, Nvidia had 52 percent and ATI had 48 percent, according to Jon Peddie.
To contact the reporter on this story: John Stebbins in Chicago [email protected]