In the most dramatic testimony so far in the four-week-old antitrust trial, Intel Corp. vice president Steven McGeady also testified he heard a high-ranking Microsoft executive describe the company's strategy to "embrace, extend and extinguish" competitors and saw them use that strategy against Netscape Communications Corp. and Sun Microsystems.

The justice department and 20 states have charged that Microsoft violated the nation's antitrust laws in trying to protect a monopoly in the operating system for personal software and by competing unfairly against Netscape in the market for Internet browsers.

McGeady said that in his view, Microsoft's approach had constricted innovation, slowing the arrival of video conferencing, secure electronic transactionsand other benefits he said were still unavailable to consumers.

Microsoft spokesman Mark Murray said later sworn testimony by other Intel executives would cast serious doubt on the truth of McGeady's testimony when he faced cross-examination.

The government also entered into evidence a July 7, 1995, memo by Gates noting Intel's work on Internet software, after showing a video of Gates' sworn testimony this year that he was unable to think of any such work done by Intel, adding: "I don't think Intel ever did any Internet software work."

McGeady, the fourth of at least 24 witnesses, was apparently meant to back up witnesses from Apple Computer Inc. and Netscape, who testified Microsoft pressured them to drop software that might ultimately compete with the Windows operating system for personal computers.

Microsoft and California-based Intel work so closely together that their machines are sometimes called "Wintel" products. Intel has the biggest share of the market for chips that run personal computersand Microsoft makes the operating system that runs on nearly all of those computers.

But the relationship turned rocky when Gates believed that Intel was poaching on its territory, McGeady testified.

McGeady, who worked with a unit of Intel that developed software, testified that Gates became furious at a key meeting on August 2, 1995 because he wanted Intel out of software.

"He was very upset that we were making any software investment," McGeady said of Gates. "He became quite enraged... Bill made it very clear that Microsoft would not support our next processor offering if we did not get alignment" in their views. McGeady said that meant Microsoft would not support Intel's coming "MMX" technology, which meant the chip designed to streamline multimedia applications would face failure.

"The Windows operating system commands a large share," McGeady said. "If our processors aren't supported very few people would buy them." McGeady testified his company had a minimum $500 million investment in thechip.

In his videotaped testimony, Gates said he was primarily concerned about the quality of software produced by Intel.

"When we saw Intel doing the low quality work that was creating incompatibilities in Windows that served absolutely no Intel goal, we suggested to Intel that should change," testified Gates.

After the August 2 meeting Intel backed off and the two companies worked more closely.

Little more than a month later, McGeady flew North for a meeting in Oregon where Paul Maritz -- a top Microsoft executive -- described Netscape as their common enemy and described plans to "cut off Netscape's air supply," McGeady testified.

McGeady said that meant cutting off income to Netscape so it would be unable to pay its engineers and compete.

Maritz also talked about a strategy to "embrace, extend and extinguish" the competition, McGeady said.

The ultimate idea, said McGeady, was that software developers would follow Microsoft's lead so its Web browser would become dominant and incompatible withNetscape's.

McGeady said the same strategy was used against Sun Microsystems. Sun had developed the Java software language. The idea was that developers could write programmes once in Java, which would sit on all kinds of different operating systems. That meant it would not matter whether Windows or some other operating system was running underneath the Java.

So Microsoft, fearing a threat, decided to make its Java incompatible with that of Sun, McGeady said. Sun has sued Microsoft in San Jose, California, alleging it violated a contract on that issue.

McGeady said the net effect of Microsoft's approach was to slow the rate of innovation. He said consumers had lost out on competition that would have forced Microsoft to innovate at a quicker rate.