IBM Faces Antitrust Hurdle

International Business Machines (IBM - Analyst Report) has been charged by the Computer and Communications Industry Association (CCIA), a non-profit trade group organized by IBM’s rivals Microsoft (MSFT - Analyst Report) and Oracle (ORCL - Analyst Report). The allegation is directed at its Mainframe computer business, which is taking revenues and pressurizing profits of its competitors by withdrawing the license access to customers using non-IBM hardware operating systems.

The U.S. Justice Department (DOJ) is investigating the allegations against IBM for its conduct in the Mainframe business. Some smaller companies in the banking, government and health care sector develop technologies that would allow the software to run on cheaper hardware. Thus, to freeze competition, IBM has combined its mainframe operating systems with hardware and acquired startup Platform Solutions Inc.

Moreover, it has been alleged that IBM has curbed license of its mainframe operating systems to users of Hercules, which is an open-source software that allows IBM's mainframe operating systems to run on Intel (INTC - Analyst Report) and Advanced Micro Devices (AMD - Analyst Report) devices.

Last year, IBM acquired Platform Solutions, which complained to European regulators about IBM's restriction on the usage of its mainframe operating software on non-IBM computers.

The probe by the Justice Department will also open up antitrust violations by large telecom companies such as AT&T (T - Analyst Report) and Verizon Communications (VZ - Analyst Report) who use their dominant position in the market to win exclusive deals with handset makers and crush smaller firms.

The first quarter of 2009 was the fifth consecutive quarter for IBM’s double-digit MIPS growth on mainframe servers as well as double-digit revenue growth in the high-end of POWER servers, as 62 enterprise customers migrated to POWER systems.

Moreover, the company’s Systems and Technology segment has been growing and is expected to get a boost from new mainframe contracts extending its leadership in energy efficiency, security and resilience.

IBM said that it will cooperate with any DOJ inquiries. Thus IBM may have to worry about the current antitrust hurdle. But we note that the company has been under antitrust scrutiny many times in the past and the government ultimately dropped the case on each occasion after a long clash.

However, the effects of the scrutiny cannot be ignored.

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