Blog Post

No Financial Meltdown

Intel suffered only minimal pain in the stock market following revelations about the ‘Meltdown’ hardware vulnerability. But if the market won’t compel providers to ensure the safety of their hardware, what will?

By: , and Date: January 15, 2018 Topic: Innovation & Competition Policy

On January 3, it became public that almost all microprocessors that Intel has sold in the past 20 years would allow attackers to extract data that are not supposed to be accessible. This hardware vulnerability termed “Meltdown” is depicted as one of the largest security flaws in recent chip designs.

Financial markets were relatively unimpressed with the news; Intel’s stock price fell initially by 5% but stabilised afterwards. This contrasts sharply with the Volkswagen diesel scandal of 2015, which saw the car company’s value fall by almost 40% within a week. The two cases have more differences than similarities, but the striking resilience of Intel’s market valuation to the revelation that most Intel CPUs are vulnerable to specific attacks raises an interesting question:

Do hardware providers have sufficient incentives to make sure their products are as safe as possible?

Intel – having been made aware of the flaw more than six months ago – was able to provide guidance in how to address this security problem, so that patches to millions of computers could be rolled out. However, it is the providers of operation systems (such as Microsoft in the case of Windows) that provided these patches and that have to bear substantial cost.

We have already learned about the incompatibility of the original patch with AMD-processors or certain standard antivirus software. Administrators of complex IT infrastructures in particular will have to expend substantial resources on testing and adapting any patch on their critical hardware. Moreover, to date it remains unclear how severe the implications for processor performance are. As the security flaw lies in a feature to increase a processor’s computing power, modifying this feature could cost speed. First reports do not agree over the expected performance losses: some expect significant speed reductions, while Intel and Google claim that effects will most likely be minimal.

However, the reaction of the stock market suggests that Intel will not be held fully accountable for this incident, therefore will not have to bear the full cost of the flaws in its processors. This is somewhat worrisome, as it indicates that producers of essential IT hardware seem not be incentivised by the stock market to provide secure products, while the costs of the flaws in their products have to be paid by others.

Intel’s domination in the market of desktop and server processors could partly explain the gentle reaction of its stock. In a more competitive market, consumers would have more product choices and consequences for Intel would have been more severe. In contrast to Intel’s case, the stark drop of Volkswagen’s stock price could be explained – among other factors – by the more competitive market environment.

The question, however, of whether more competition in the processor market would have prevented a flaw such as “Meltdown” remains very much disputed. It is unlikely that higher investments by Intel, induced by stronger competition, would have prevented “Meltdown” – which has remained undetected by the entire chip industry for 20 years.

The most worrying aspect of the Intel case remains, though, the implication that providers of essential hardware might have more to lose from continuously searching for problems that do not exist, than from occasionally failing to spot a potential threat.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More on this topic More by this author
 

Opinion

Regulation in the era of matchmaking economics

New approaches and new tools are needed to prevent excessive concentration of economic power in the hands of a few matchmaking digital platforms that form multi-sided markets. Regulation in this area is only just emerging.

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: January 5, 2021
Read article More by this author
 

Podcast

Podcast

The new EU digital regulations: Explained

Bruegel's experts walk you through all the details of the EU's Digital Services Act and Digital Markets Act.

By: The Sound of Economics Topic: Innovation & Competition Policy Date: December 16, 2020
Read article More on this topic More by this author
 

Opinion

Brussels’ Digital Plan Leaves the Key Issue Unaddressed

To promote well-being and shared prosperity, EU decision-makers will need to show the same desire for competition beyond the boundaries of digital markets.

By: Mario Mariniello Topic: Innovation & Competition Policy Date: December 14, 2020
Read about event More on this topic
 

Past Event

Past Event

Innovative approaches to monitoring the risks and impact of COVID-19

What new innovative tools can we use to measure real-time economic and social risk?

Speakers: Zsolt Darvas, Jaime Garcia, Ben McWilliams, Nicola Villa and Georg Zachmann Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 8, 2020
Read article More on this topic More by this author
 

Opinion

A timid start for European Union data governance

Europe needs all pieces of its data strategy puzzle to be in place to enhance its competitive position: there is still a long way to go.

By: Mario Mariniello Topic: Innovation & Competition Policy Date: November 26, 2020
Read about event More on this topic
 

Past Event

Past Event

Digital Platforms, Regulation and Competition: What's next for Europe?

Will the new rules of the internet go far enough for consumers and creators? Should we regulate platforms or will a code of conduct suffice?

Speakers: Diane Coyle, Jorge Padilla, Georgios Petropoulos and Alex A. Saliba Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 26, 2020
Read article
 

External Publication

European Parliament

Data flows, artificial intelligence and international trade: impacts and prospects for the value chains of the future

In-depth briefing and analysis on the issues of digital trade and the geopolitics of trade provided to the European Parliament.

By: Dennis Görlich, Michèle Finck, Georgios Petropoulos, Niclas Poitiers and André Sapir Topic: European Macroeconomics & Governance, European Parliament Date: November 26, 2020
Read about event More on this topic
 

Past Event

Past Event

Free movement of data: how to maintain necessary sharing among the EU, UK, and USA?

In the current legal climate, how can the EU, the US and the UK continue to share data?

Speakers: Christian Borggreen, Joe Jones, Christian Kastrop, J. Scott Marcus and Reinhilde Veugelers Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 25, 2020
Read about event More on this topic
 

Past Event

Past Event

Future of data economy: a conversation with Thierry Breton and Maximilian Schrems

How will the data travel between the EU and the US in the aftermath of the Schrems II ruling?

Speakers: Thierry Breton, J. Scott Marcus and Maximilian Schrems Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 24, 2020
Read article Download PDF More on this topic
 

Working Paper

Digital platforms and antitrust

The market power of online platforms raises concerns that they may engage in anti-competitive practices, but traditional (ex-post) antitrust intervention will be less effective in markets driven by network effects unless it is combined with a proper (ex-ante) regulatory framework. Intervention should not reduce value creation, should focus on fair sharing of value, and should eliminate incentives for anti-competitive strategies.

By: Geoffrey Parker, Georgios Petropoulos and Marshall Van Alstyne Topic: Innovation & Competition Policy Date: November 23, 2020
Read article Download PDF More on this topic
 

Parliamentary Testimony

European Parliament

Socio-economic effects of digital trade and artificial intelligence on EU industries including their value chains and EU imports and exports with major trade partners

Testimony before the European Parliament on the subject of digital trade.

By: Georgios Petropoulos and André Sapir Topic: European Parliament Date: November 16, 2020
Read article Download PDF More on this topic
 

Parliamentary Testimony

European Parliament

Political assessment of possible future positive (cooperation) or negative (restrictive) attitudes of main trade partners of the EU

Testimony to the European Parliament on the geopolitical aspects of trade.

By: Dennis Görlich and Niclas Poitiers Topic: European Parliament Date: November 16, 2020
Load more posts