Friday, July 30, 2010

IBM Under the Microscope: The EU Competition Commission Takes a Hard Look

In the 70’s and 80’s, IBM was a frequent target of investigation, both in the U.S and abroad, for alleged anti-trust claims. The last twenty years has seen that focus shift to Microsoft, as software became a much more lucrative and competitive field than computer hardware. With this history in mind, it is somewhat surprising to see that the European Union Competition Commission is now re-focusing its investigative eye on Big Blue. The focus of the investigation, according to an article in the July 29th San Francisco Chronicle with Bloomberg Business Report, is whether IBM is abusing its dominant position in the market for mainframe computers. The impetus for this investigation is a complaint by t3 Technologies Inc., a company in which Microsoft has invested in. Signaling its awareness that its rival is behind this complaint, IBM responded in a June 26th statement that “there is no merit to the claims being made by Microsoft and its satellite proxies”.

If the investigation yields evidence that supports the complaint, it could present a serious problem for IBM. Although mainframe sales account for only 4 percent of IBM’s revenue, those sales generate related sales of software, services and financing. These elements combine to contribute almost a quarter of IBM’s sales and 40% of its profits, according to Sanford C. Bernstein analyst Toni Sacconaghi.

The European Union has long taken a much tougher stance regarding competition policy (referred to in the U.S. as “antitrust”), and in recent years has focused on U.S. companies, collecting 2.2 billion in fines from Microsoft, and 1.39 billion from Intel. Bolstered by these victories, it is unlikely to ease off is aggressive policies – a factor U.S. companies would be wise to consider.

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