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Dell's Intel Bias Caused By Under the Table Cash?

Zonk posted more than 7 years ago | from the that-certainly-would-explain-it dept.

Intel 256

swschrad writes "There's a story up on Reuters today saying Dell faces a class-action lawsuit for finagling the books to hide under-table money from Intel. The hidden cash, up to a quarter-billion dollars a quarter, is alleged to have been paid to keep competing CPUs out of Dell PCs. Dell, their accountants at PriceWaterhouse, company founder Michael Dell, and former CEO Kevin Rollins are all avoiding comment on the pending litigation."

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256 comments

Only Intel? (4, Insightful)

Lockejaw (955650) | more than 7 years ago | (#17861880)

I could have sworn I've seen Dell selling machines with AMD CPUs.

Re:Only Intel? (2, Informative)

rob1980 (941751) | more than 7 years ago | (#17861944)

You have. My brother just bought a new Dell with an Athlon 64 in it a couple of weeks ago, in fact.

Re:Only Intel? (0)

Anonymous Coward | more than 7 years ago | (#17862582)

Thats right he did. It must have been that one he saw.

Re:Only Intel? (1)

BanjoBob (686644) | more than 7 years ago | (#17861988)

Dell just released a statement that they were dropping AMD in favor of Intel again. So, money does buy happiness (for intel).

Re:Only Intel? (0)

Anonymous Coward | more than 7 years ago | (#17862216)

Do you have evidence for this claim? I can't find it anywhere.

Re:Only Intel? (1)

Shadow99_1 (86250) | more than 7 years ago | (#17862248)

Dell spent years refusing (the then better performing and equally compatible) AMD CPU's for it's various PC's... It is only recently that AMD has gotten a fair chance with Dell. I'm assuming by this article that Intel stopped paying and that's why the finally relented last year and introduced AMD based systems.

Re:Only Intel? (3, Insightful)

eriklou (1027240) | more than 7 years ago | (#17862438)

Before they opened up to AMD, 6+ months ago?, Dell would only sell Intel based systems and Intel only. I think the only reason that they opened up to AMD was the demand (Intel fell behind the tech curve) and that the whole Intel deal was found out.

Due to their Tech support Script monkeys (I told you I don't have Windows installed five times now...) the over all quality drop (You need a new HD for that Computer you just bought 4 months ago...) and their lackluster cookie cutter builds, (Yay I have to reinstall Windows just to uninstall all this crap that's pre-loaded, wait I don't have a Windows disk...) I have really stopped recommending them to people looking for a new computer. I wish I knew who I could recommend now without the guilty feeling.

Re:Only Intel? (3, Interesting)

Red Flayer (890720) | more than 7 years ago | (#17862708)

I could have sworn I've seen Dell selling machines with AMD CPUs.
You have. This is historical, not current activity -- and was stopped when AMD started filing complaints under Competition Law in many jurisdictions -- Japan, the EU, etc.

under the table? (1)

superwiz (655733) | more than 7 years ago | (#17861884)

What is that supposed to mean? They are two companies free to negotiate whatever price they want with each other. It's their business and their right to do so. What the f**k?

Re:under the table? (4, Informative)

MindStalker (22827) | more than 7 years ago | (#17861972)

Yea but a publicly traded company has to reveal income. If Intel was actually giving them cash instead of just lowering their prices then this income has to be accounted for legally

Re:under the table? (3, Insightful)

Jeff DeMaagd (2015) | more than 7 years ago | (#17862040)

I don't understand why "under the table" cash is even necessary. Why do that if they can just get a discount? Do public filings even show which company is getting Dell's money? I don't think they are broken down that far.

Re:under the table? (0)

Anonymous Coward | more than 7 years ago | (#17862092)

Easy: a decision maker can then pocket the cash instead of it going to the profits of the company, and make up some swill about why they should stay loyal to Intel to justify their position.

Re:under the table? (4, Interesting)

Anonymous Coward | more than 7 years ago | (#17862106)

Discounts go to the company (shareholders). Under the table cash goes to the ones who arranged the deal (executives).

Re:under the table? (3, Insightful)

click2005 (921437) | more than 7 years ago | (#17862172)

A discount will be shown in finacnial records allowing other companies to see. If HP knows what kind of discount Dell gets, they can try to demand a similar discount.

Financial records are private (4, Informative)

donutello (88309) | more than 7 years ago | (#17862326)

Financial statements are public and they never include per-unit prices for raw materials and parts. They include a lump sum "Cost of Goods Sold" which includes the total price for all raw materials and parts consumed per business (if it's broken down that way). If Dell is worried that other companies can read their financial records they have more serious problems to worry about.

Re:under the table? (2, Insightful)

Registered Coward v2 (447531) | more than 7 years ago | (#17862538)

I don't understand why "under the table" cash is even necessary. Why do that if they can just get a discount? Do public filings even show which company is getting Dell's money? I don't think they are broken down that far.

Well, while I think such a payment should be used to reduce the cost of the components and as a result widen the profit margin (and hence the taxes paid) Dell may want to account for it differently. They could, for example, be offering copay money to advertise Intel chips; which would be a different accounting treatment.

In addition, if Intel discounts then they will have to offer the same discount to any other company that they have a "best price" contract in place; so a discount will cost more than just what they give Dell. Therefor, they sell at list and pay cash to lower the price without offering a "discount."

Re:under the table? (1, Interesting)

HomelessInLaJolla (1026842) | more than 7 years ago | (#17862316)

> If Intel was actually giving them cash

Rarely do companies give actual cash. Usually this sort of favoritism plays out in a more obfuscated form, on the golf course, along the lines of "Don't tell the guys over at HP or AMD, but we at Intel are planning on pumping a whole buttload of cash into companies A, B, and C. As long as you continue to more favorably market systems with our Intel chips we'll make certain that you're in on the IPO/higher return stock grades/more favorable interest rates on loans to help you short, etc. etc. etc."

Priveleged information used to maintain social relationships, bias, and control.

Very similar to the concept of a government security clearance.

Re:under the table? (4, Insightful)

nuzak (959558) | more than 7 years ago | (#17862580)

Actually, that's naked insider trading. It's more like "we're investing in a new company X, and we could send them your way as their systems vendor, that is, with our cash. So what about that purchasing deal we were talking about before?"

Revenues v/s Cost of Goods Sold (1)

donutello (88309) | more than 7 years ago | (#17862434)

The article is vague on details but it sounds like they are alleging that Dell recorded the Intel money as part of their revenue instead of discounting it from the COGS as they are supposed to do. I still don't see how it could inflate their profits as the suit alleges.

Re:under the table? (1)

HarbingerKtS (979609) | more than 7 years ago | (#17862054)

Well, aside from the fraud keeping such transactions off the book constitutes for both companies, if both companies are guilty of collusion [wikipedia.org] this could have had much farther reaching effects on CPU prices and pre-built system configurations than you realize.

Re:under the table? (0)

Anonymous Coward | more than 7 years ago | (#17862404)

This wouldn't be collusion...since they don't produce competing products.

Re:under the table? (1, Funny)

arodland (127775) | more than 7 years ago | (#17862082)

Come on. They're two companies in the US. It's not like there's any sort of a free market.

Anti-dumping laws (1)

NeutronCowboy (896098) | more than 7 years ago | (#17862208)

I suspect that there are some anti-dumping laws here that are being circumvented. It's the only thing I can think of that makes it illegal to lower prices below a certain level (which is what the end-result of that transaction is).

Re:Anti-dumping laws (5, Informative)

udderly (890305) | more than 7 years ago | (#17862348)

It's called predatory pricing [wikipedia.org] . Mainly it's when a larger company with more marketshare prices their products below profitability in order to bankrupt their competitor.

It's one of the main reasons that straight free markets don't work.

Re:under the table? (5, Interesting)

Red Flayer (890720) | more than 7 years ago | (#17862514)

Ahh, nope. I suggest you do some research on anti-monopoly laws, as well as US regulations of publicly traded companies. Companies in a position of market dominance (as Intel was at one time) are not allowed to pay resellers to not use competitor products. The money was likely paid under the table to avoid investigation in re: Intel paying to keep AMD out of Dell products; the other reason for the payments being on the sly was to manipulate stock prices, which is also illegal.

From AMD's complaint about Intel's unfair business practices, emphasis mine:

Intel's conduct has unfairly and artificially capped AMD's market share, and constrained it from expanding to reach the minimum efficient levels of scale necessary to compete with Intel as a predominant supplier to major customers. As a result, computer manufacturers continue to buy most of their requirements from Intel, continue to pay monopoly prices, continue to be exposed to Intel's economic coercion, and continue to submit to artificial limits Intel places on their purchases from AMD. With AMD's opportunity to compete thus constrained, the cycle continues, and Intel's monopoly profits continue to flow.

Consumers ultimately foot this bill, in the form of inflated PC prices and the loss of freedom to purchase computer products that best fit their needs. Society is worse off for lack of innovation that only a truly competitive market can drive. The Japanese Government recognized these competitive harms when on March 8, 2005, its Fair Trade Commission (the "JFTC") recommended that Intel be sanctioned for its exclusionary misconduct directed at AMD. Intel chose not to contest the charges.

It's pretty likely, IMO, that Intel used these unfair business practices in countries other than Japan.

Let alone the reporting issues for public companies that other posters have addressed.

Re:under the table? (2)

eriklou (1027240) | more than 7 years ago | (#17862532)

It's not that Intel was giving Dell a good deal, it was Intel buying Dell out to block the use of AMD chips.

Did you ever notice (-1, Offtopic)

Anonymous Coward | more than 7 years ago | (#17861902)

that it is hard to get sperm out of Dell keyboards ? I think that is the misssing point to this story,

Say it ain't so! (5, Funny)

TheJerg (1052952) | more than 7 years ago | (#17861904)

A large technology company trying to make sure the competition stays out of the game by pushing the retailers? Preposterous! Next you'll tell me that Microsoft is trying to rule the world by forcing everyone on the planet to use their products.

My God... (5, Funny)

MidVicious (1045984) | more than 7 years ago | (#17861914)

Under the table money from Intel?

Wait... is that why the Opinion Center colors are so... I dunno... currency like?

Reuters gets slashdotted... Slashdot gets Intel'ed!

I for one welcome our--- AGH! [tackled and beaten to death by slashdotters]

Who is filing the suit? Which investors? (0)

Anonymous Coward | more than 7 years ago | (#17861930)

If this is true, I hope Dell pays for it. Since this is a class-action lawsuit, who will be the benefitors of any sort of settlement? Also, is it implying that by "investors," they mean the investors of Dell? If so, you'd think that they'd be near the bottom of the line to bring up anything negative about the company they invest in?

Re:Who is filing the suit? Which investors? (1)

skoaldipper (752281) | more than 7 years ago | (#17862142)

Who's filing the suit? Only two. A bank established for labor unions and a company which handles pension funds. I can connect the italic dots (and this story); Dell's just in the middle of another labor union contract negotiation phase; lawsuits are not an uncommon tactic.

Re:Who is filing the suit? Which investors? (1)

skoaldipper (752281) | more than 7 years ago | (#17862626)

Also, I believe there are no current contracts with labor unions and Dell currently. Sounds to me like just another attempt by the benefactors of labor unions to pressure Dell into make that concession.

Re:Who is filing the suit? Which investors? (2, Insightful)

Anonymous Coward | more than 7 years ago | (#17862662)

If this is true, I hope Dell pays for it. Since this is a class-action lawsuit, who will be the benefitors of any sort of settlement?

Lawyers.

Opinion Center (5, Funny)

corby (56462) | more than 7 years ago | (#17861938)

Sounds like a great article for the Intel Opinion Center! [slashdot.org]

Re:Opinion Center (1)

sjwest (948274) | more than 7 years ago | (#17862228)

huh you must be french right Intel exec trying to deflect a question

what was funnier was Kevin (ceo of dell) was offering his latest intel powered server on an advert in slashdot - its true and he was smiling. Guity i say

I blame George W. Bush (-1, Flamebait)

Anonymous Coward | more than 7 years ago | (#17862724)

As a goo Slashdotter, I blame that Jew-puppet Bu$Hitler McHaliburtin.

Oh, and the Jews ... the Jews.

So What (1)

TheRecklessWanderer (929556) | more than 7 years ago | (#17861960)

So what?

Isn't that what lobbying is all about?

It's called deal making. If Intel offered me cash to use their CPUs only, I would take it.

It's called a rebate.

Re:So What (1)

R2.0 (532027) | more than 7 years ago | (#17862032)

1) Public company - such payments MUST be accounted for and disclosed.
2) Did the payments go to Dell or *individuals* within Dell? Those would be kickbacks, which are definitely illegal.

Re:So What (2, Funny)

Registered Coward v2 (447531) | more than 7 years ago | (#17862388)

It's called a rebate.

No, if it was they'd have to submit all of the UPCs and receipts; and then get an email denying the rebate because they forgot to send in the left bottom flap from all of the boxes.

Re:So What (1)

Zontar_Thing_From_Ve (949321) | more than 7 years ago | (#17862744)

So what?

So, it just might be illegal. Consider the following scenarios, none of which may be true and all of which are just speculation by me. Again, none of these may be true, but it shows how this kind of thing is more than "no big deal".
1) If Dell hid this money from the IRS and failed to pay taxes on it, that would certainly be illegal.
2) If Dell claimed this money under "sales" when in fact it was a gift, that might have caused their stock to be inflated by making their sales look better than they were. That would certainly lead to a class action lawsuit by unhappy shareholders.
3) Paying someone to keep out another competing product is actually anti-capitalistic you Ayn Rand loving morons! Similar cases have gone before the Federal government in the past and typically they weren't looked upon so favorably. Just because someone pays someone to do something that doesn't mean it's legal. Do you losers really think that if Coke gave millions of dollars in payouts to keep Pepsi out of grocery stores that Pepsi would just shrug it off as "good business by Coke"?

What about their Microsoft bias? (-1, Flamebait)

PingXao (153057) | more than 7 years ago | (#17861974)

Alternatives such as Linux have been available with Dell machines off and on now for about a decade. ISTR very recently people still having problems getting refunds for the Microsoft tax. I favor free markets and supply and demand and all that, but with MS the market is hardly free and open.

why under the table? (2)

venicebeach (702856) | more than 7 years ago | (#17861984)

The lawsuit accuses Dell of artificially inflating profits "by secretly receiving approximately $250 million a quarter in likely illegal rebate kickbacks payments" from Intel in return for an exclusive deal to purchase Intel's microprocessors, class-action lawyer William Lerach told Reuters.
I can see why hiding such a transaction is illegal. But why is the deal itself illegal in the first place? Why do they need to hide that? Why can't Dell make a deal with Intel to use only Intel chips in exchange for a good price if they want to?

Re:why under the table? (1)

Namegduf Live (910658) | more than 7 years ago | (#17862124)

I can see why hiding such a transaction is illegal. But why is the deal itself illegal in the first place? Why do they need to hide that? Why can't Dell make a deal with Intel to use only Intel chips in exchange for a good price if they want to?
Because it's anticompetitive to make deals to lock competition out of the market.

Re:why under the table? (1)

painQuin (626852) | more than 7 years ago | (#17862148)

because then Intel comes under fire for monopolistic practices probably... best guess from a programmer, not a lawyer.

Re:why under the table? (0)

Anonymous Coward | more than 7 years ago | (#17862164)

Why is intel your choice, Michael Dell?

Before this was known:

  - Because it's a better CPU/better price/whatever

Now that this is known:

  - Because we get paid not to use the other CPUs (hush from crowd... mumbling from crowd... "I wonder if that means the other ones are better and Intel just needs to cover it up?")

Re:why under the table? (1)

Geak (790376) | more than 7 years ago | (#17862204)

Antitrust laws maybe? Perhaps Dell - being the largest computer manufacturer in the world is afraid that they may be considered a monopoly and end up in an anti-trust lawsuit with AMD? Basically for the same thing microsoft did when they increased prices for computer manufacturers that offered other operating systems. Is there really any difference between lowering your price for manufacturers that exclusively use your product and increasing it for manufacturers that don't?

Big deals sometimes have provisions (5, Informative)

alexhmit01 (104757) | more than 7 years ago | (#17862238)

One way in which a monopolist controls the market is with public price matching. For example, if Intel publishes all their pricing, and guarantees that anyone going exclusively Intel will not pay more than say, Dell, then if Intel drops the price to Dell, they have to refund money to other all-Intel shops... perhaps Apple or other players that agreed to go all Intel to get price breaks.

If Intel gives Dell a 250m rebate, then they are actually charging below the price, and would have to match it elsewhere. However, by hiding the rebate, they can keep charging Dell a book value and collecting the premium elsewhere.

When big players negotiate big contracts, they often put in protections to not be worse off than the competition. I would expect the deal to be illegal because by not disclosing it, they MAY be in material breach to other companies. Further, Intel has signed consent decrees with the Feds over alleged anti-trust violations, and non-disclosed payments to keep competition out may violate those agreements.

This isn't a local computer shop contracting with a wholesaler, these are two Fortune 50 companies, sometimes they have arrangements covering them.

Also, what if a state government agreed to a deal where Dell was the exclusive provider in exchange for cost-plus accounting. Dell would bill on the reported cost, plus profit margin, and then collect the rebate.

There are a bunch of reasons why this might be illegal because it is potentially defrauding other companies IF their deals are dependent on Intel or Dell's pricing structure.

Re:why under the table? (1)

Anonymous Coward | more than 7 years ago | (#17862278)

As for your last question, you've got to detach from this suit for a second and look at the larger picture, in this instance. Sitting down and negotiating a price for chips is usually the way to go unless, all of a sudden, the chip manufacturer talks to every major computer manufacturer and makes deals with them to only use their product in the majority of their lines. We call this "interfering with competition."

Difference between "under the table" and price? (0)

Anonymous Coward | more than 7 years ago | (#17861994)

I'm not sure what the difference between a "bribe" and offering lower cost chips are. Dell's going to do whatever it takes to make more money for themselves, I don't see the difference between taking money upfront in terms of lower chip prices or in one bundle in a payoff.

PWC (0)

Anonymous Coward | more than 7 years ago | (#17862002)

Do you think PriceWaterhouseCoopers will be in the same hot water that Arthur Andersen was a few years back?

Interesting. (1)

dpaluszek (974028) | more than 7 years ago | (#17862028)

This is very interesting since Dell was not putting AMD processors in any workstations or home PC's until recently. When I talked to my Dell Global Team here at my job, they basically said there was no intention of moving to the home market at that time, only in rackmount servers.

Nevertheless, Dell and Intel are very shady companies. I wouldn't put it past them at all. I even knew about slush funds for evaluation equipment from each of the main computer builders.

An accountant, a Lawyer, and an Engineer (5, Funny)

Shadow Wrought (586631) | more than 7 years ago | (#17862030)

An accountant, a Lawyer, and an Engineer are all interviewing for a CEO job. As part of their respective interviews, the Board of Directors asks them what 2 + 2 is.
The Lawyer answers that it generally considered to be 4, but there could be precendants in which that answer may vary.
The Engineer takes out a slide rule, works for a bit, and answers that it is 4.000000000000000000000000000000000000000
The Accountant looks at the Board and asks, "What would you like it to be?"

Re:An accountant, a Lawyer, and an Engineer (2, Funny)

Anonymous Coward | more than 7 years ago | (#17862168)

Engineer: 2+2=5, but you better use 8.

Re:An accountant, a Lawyer, and an Engineer (0)

Anonymous Coward | more than 7 years ago | (#17862416)

"The Engineer takes out a slide rule, works for a bit, and answers that it is 4.000000000000000000000000000000000000000"

Joking aside, you can't do addition and subtraction on the old slide rule. And you're limited on the number of significant figures that is valid in your results (something that they don't teach much today).

Re:An accountant, a Lawyer, and an Engineer (1)

Anonymous Coward | more than 7 years ago | (#17862572)

And you're limited on the number of significant figures that is valid in your results (something that they don't teach much today).

No kidding. I do layout for a biomedical journal and I'm shocked by how often I'm given fully peer-reviewed and copy-edited manuscripts that have mismatched significant figures and improper use of units of measure, etc. Then again, I'm one of those technical people who paid a lot of attention in all of my math and physics classes (decided I'd rather go into publishing). But still, it's scary how often I see errors and am reminded of my professors who would always harp on things like "double check to make sure you have the right number of significant figures" and "always make sure you're using the right units of measure."

Re:An accountant, a Lawyer, and an Engineer (0)

Anonymous Coward | more than 7 years ago | (#17862774)

Joking aside, you can't do addition and subtraction on the old slide rule.

While the log scale (for multiplication) was the main thing used on a slide rule, many had linear scales (mine do).

Huh? (0, Troll)

bendodge (998616) | more than 7 years ago | (#17862064)

What's wrong with paying another company to carry only your products? Is it considered anti-competitive?

But whatever the case, it shows that Intel doesn't trust their product enough to expose it to the free market.

Re:Huh? (1)

nuzak (959558) | more than 7 years ago | (#17862230)

> What's wrong with paying another company to carry only your products? Is it considered anti-competitive?

Yes, but not all anti-competitive behavior is unlawful. Dell and Intel are big enough, however, that it probably would be.

Additionally, this was a secret payment which is a very very big no-no. For all we know, it could have been a direct kickback to executives, which is the "go directly to jail" kind of illegal.

Re:Huh? (2)

gallondr00nk (868673) | more than 7 years ago | (#17862810)

"But whatever the case, it shows that Intel doesn't trust their product enough to expose it to the free market."

*looks at home built Celeron machine*

*looks at old home built PIII*

*looks at dual pentium pro server*

Oh noes! It cannot be! Would these 3 machines spanning 10 years possibly be.... Intel processors bought from the "free market"? They must be Cyrix M2-300s or Motorola 68000s with Intel stickers on them, because Intel would surely never release their sub standard rubbish onto the open market.

I hate to inform you, but you can buy Intel components in the open market!

I am not surprised (0, Troll)

aschoeff (864154) | more than 7 years ago | (#17862176)

Intel is a horrible monopolist that needs to be dismantled. Let's hope this is a step in that direction.

Re:I am not surprised (1)

johnnyringo (202714) | more than 7 years ago | (#17862610)

I thought the IBM/Intel/AMD processor wars have been good for users, no? Wihout Intel, wouldn't AMD just be a "horrible monopolist." I think the last decade has shown some really great swings from IBM to Intel to AMD and now back to Intel in terms of pure performance, and even price/performance. The tech that is coming out of the market is pretty sweet. Intel's chips are now faster and cooler- thanks to AMD- and it looks like AMD will continue to bring the market around to more efficent processors. It's seems all good to me...

Re:I am not surprised (1)

aschoeff (864154) | more than 7 years ago | (#17862802)

Intel was a monopolist loooong before AMD was in the picture. We're talking 8086 on up.

Monopolists almost by definition do underhanded, unethical, and illegal things like these under-the-counter transactions, because without them the market would never have become theirs in the first place. That's why AMD and Transmeta could never be on a level playing field with Intel, they're just not corrupt enough. The myth that this is just healthy competition between like-minded companies needs to be dispelled over and over until everyone understands just what has gone on and is still going on today.

Keep AMD out of Dells! (-1, Troll)

JAB Creations (999510) | more than 7 years ago | (#17862178)

Dell computers all suck and it only gives Intel a bad association when their processors are given a feeble 128 or 256 MB of memory. Also try installing XP or Vista without the CD/DVD that was shipped with you.

Re:Keep AMD out of Dells! (1)

bladesjester (774793) | more than 7 years ago | (#17862718)

Also try installing XP or Vista without the CD/DVD that was shipped with you.

First thing I did when I got my dell laptop was to wipe the hard drive, partition it for dual boot, and install XP Pro (for which I had a license) instead of XP home that the laptop shipped with.

No problems at all.

A question (1)

rewt66 (738525) | more than 7 years ago | (#17862254)

As un-/. as it seems, I actually read the article, and I don't get it.

OK, this is probably illegal. But defrauding the shareholders by artificially increasing profits? Huh? If a company finds a way to make an extra billion and change each year, don't shareholders usually consider that a good thing?

Bribes are not sustainable, see (4, Interesting)

hirschma (187820) | more than 7 years ago | (#17862472)

It is the same thing as if Dell was selling cocaine, and claiming that the proceeds from that were due to their super-fine computer business. People would be investing in them because they had such great metrics in the sustainable, legal business of selling computers. This is apparently not the case.

It also means that they will likely perform poorly compared to previous quarters. Stock value is about looking forward, not back - the price rises on what people think will happen next. In other words, speculation. Lots of folks will lose money because of these secret, and likely, illegal dealings. Hence the lawsuit.

Moreover, this behavior may open Dell to substantial unrelated lawsuits - which means that the folks in charge of Dell were neglecting their fiduciary responsibility to shareholders. Again, a perfectly valid reason for shareholders to sue.

I hope that Dell is gutted for this.

Re:A question (1)

geoffspear (692508) | more than 7 years ago | (#17862478)

I'm wondering if the people suing sold their Dell stock based on their reported income, and are now upset that Dell has "artificially inflated the stock price" through, umm, having that extra money?

Re:A question (1)

BeBoxer (14448) | more than 7 years ago | (#17862584)

But defrauding the shareholders by artificially increasing profits?

You point it out yourself. Artificially. Now that Dell is shipping AMD processors they are probably not getting the rebate from Intel anymore. Their profits are going to take a big hit for reasons which were not disclosed to investors. Had Dell been putting something in their FTC filings saying "$1 billion dollars of revenue are dependent upon exclusive marketing deals with Intel which we may not be able to maintain in the face of increasing customer demand for alternatives" or some such they would have been in the clear. But by hiding it, they set themselves up for trouble.

Intel/AMD (yeah, it's a little off-topic) (1)

writermike (57327) | more than 7 years ago | (#17862306)

I've seen the Vista ads in which Microsoft compares Vista to the fall of the Berlin wall and the man-moon shot (ooookay) and in this end instead of an Intel logo, we get an AMD logo. Kinda interesting. But off-topic...

Dellintel AMD (1)

demonbug (309515) | more than 7 years ago | (#17862308)

I found it sort of funny that Dell finally started offering computers with AMD chips around the time that Intel finally caught back up to AMD performance-wise. There were a good 2-3 years (at least) when AMD was the clear leader in terms of both price and performance when you couldn't get AMD from Dell. Now that Intel is back on top (at least in terms of performance), Dell has finally gotten around to offering AMD.

I'm not at all surprised to hear about the lawsuit - it seemed to me that the only reason Dell would be so slow to adopt the clear performance leader is if they were getting some special kickbacks from Intel (though I'd guessed it would just be in the form of really, really good discounts for Dell as opposed to actual cash payments from Intel).

Re:Dellintel AMD (1)

adam.dorsey (957024) | more than 7 years ago | (#17862720)

It's the "momentum" of big business, so to speak. Something as big as Dell can't just turn on a dime. They'll probably start switching back to Intel because of Core 2, and in 3 years when they actually do it, AMD will be back on top.

Odd (1)

pr0nbot (313417) | more than 7 years ago | (#17862382)

Seems a bizarre way to bribe them.

Why not just have an agreement, and then heavily discount the price of CPUs?

I don't know whether having such an agreement would be illegal, but I doubt selling CPUs cheap is.

As a DELL shareholder: (-1, Troll)

Anonymous Coward | more than 7 years ago | (#17862460)

SELL

P.S. Fuck Bush.

What's artificial about the profits? (2, Insightful)

qaqa (980561) | more than 7 years ago | (#17862482)

From TFA "The lawsuit accuses Dell of artificially inflating profits "by secretly receiving approximately $250 million a quarter..."

1) Well, if the USD250 mn received was accounted for (thus "inflating profits") how can it be secret? If the rebate was illegally pocketed by execs, that would be "under the table".

2) Last time I checked, it was not "illegal" to offer quantity discounts/rebates to large customers. Hell, according to the law firm's logic, buying at CostCo is illegal because they offer quantity based rebates!

3) All criterea for revenue recognition were fulfilled - the amount was a revenue receipt and was actually received. How can then it amount to "artificial inflation of profits"?

The law firm is just out to get some free publicity and slashdot's editors are too willing to help.

frrost pist (-1, Troll)

Anonymous Coward | more than 7 years ago | (#17862486)

bben looking for! states that there downwArd spiral. In with THOUSANDS of

vague definition of "illegal" (1)

yskel (1020399) | more than 7 years ago | (#17862498)

The article itself is using "illegal" in the vaguest terms. It may be illegal to have offered and accepted the kickbacks - I think US law allows what amounts to bribes in those industries where they are a common and widespread part of doing business (and as long as the bride taker is not a government entitity or certain healthcare providers). For Dell, it most certainly is illegal to conceal the source of revenues from shareholders, and also from the IRS. From Intel's standpoint, it would be illegal to have offered kickbacks, and then not account for and declare them as such to shareholders and the IRS. Overall, though, it sounds like the article put that line about illegality in just to grab readers attention.

quarter billion? (1)

theodicey (662941) | more than 7 years ago | (#17862542)

What a waste. Intel should steal a page from Exxon's book.

For the meager sum of $10,000, this computer professional will gladly write a paper about the awesomeness of Intel CPUs.

If this is true.. (1)

zyl0x (987342) | more than 7 years ago | (#17862562)

I wonder which of those guys looks worse; Intel for offering the bribes, or Dell for taking them? This also shines a new light on the Apple+Intel situation. Who knows what happened with them.. maybe the same kind of behavior got Intel into the new Macs??

dig for that Microsoft marketing cash too (1)

Locutus (9039) | more than 7 years ago | (#17862566)

I'd like to see if this digs up anything along the lines of Microsoft marketing kickbacks and how it tied Windows to the OEM like thumb and index fingers on a child playing with superglue( or white on rice, stink on shit, etc ).

I've heard that over 20% of Dells profits come directly from marketing Windows. you know, 'we recommend Microsoft Windows XP' on ever page on it's website, the 12 MS windows stickers on keyboards, mice, monitor, case with ever new Dell PC. Oh, and don't forget the 'there are too many Linux distributions so we'll just wait on that' from Dell.

Then, must maybe people will understand why HP, Dell, etc don't ship Linux. After all, those 'marketing dollars' were not part of the DOJ vs MSFT settlement and pulling any of that back because of interest in Linux would not be breaking the settlement rules. What this means is that it would take a whole new case, a long drawn out case as opposed to the instant sanctions possible from settlement infractions.

Still, it's too bad Dell had to resort to accepting this instead of promoting competition in the CPU market. I guess it was easier for them to stick with one vendor as long as they kept kicking back $$$ at ever rumor of Dell going with AMD. This might not look good for Dell.

LoB
 

Wait a Minute! (1)

mpapet (761907) | more than 7 years ago | (#17862574)

The lawsuit accuses Dell of artificially inflating profits "by secretly receiving approximately $250 million a quarter in likely illegal rebate kickbacks payments" from Intel in return for an exclusive deal to purchase Intel's microprocessors, class-action lawyer William Lerach told Reuters.

There's some smoke here and probably a fire below it given how corrupt the decision making process is in a corporation. But it's not really actionable by a money trawling lawyer. The SEC certainly doesn't care. Otherwise they could make Elliot Spitzer's recent accomplishments look like a drop in the bucket.

The plaintiffs also contend that the company and its executives participated in a "widespread, long-running scheme to defraud" shareholders and inflate Dell's stock price, said Lerach, head of law firm Lerach Coughlin Stoia Geller Rudman & Robbins LLP in San Diego.

Bingo! This is how the lawyer gets his and the only reason we would ever hear anything about it. I don't see shareholders benefitting in any way shape or form.

Big money (1)

rewt66 (738525) | more than 7 years ago | (#17862602)

A quick look shows Intel's profit as being $5 billion a year, and Dell's as being $3 billion. A payment of $1 billion a year from Intel to Dell is a pretty significant financial event for both companies...

Consider the source (4, Insightful)

John Jorsett (171560) | more than 7 years ago | (#17862678)

The plaintiffs also contend that the company and its executives participated in a "widespread, long-running scheme to defraud" shareholders and inflate Dell's stock price, said Lerach, head of law firm Lerach Coughlin Stoia Geller Rudman & Robbins LLP in San Diego.

This is the firm that's made a tidy living sueing the hell out of public companies whose stock drops suddenly. Guess the stock market is doing so well that they've decided to sue for prices going in the upward direction as well. Usually the target settles out of court because winning the legal battle would cost them more. A few years back they sued a company whose stock I own. In that case the company fought them off, but it cost me and the other stockholders (in whose names Lerach was sueing, thank you so much) several million. May Lerach and his ilk rot in hell.

Different than a discount? (1)

noidentity (188756) | more than 7 years ago | (#17862694)

How is this different than Intel simply giving Dell a lower price on their CPUs, or a "rebate" of sorts? In the end, the net flow of money is from Dell to Intel. Would it be perfectly fine if Intel sold Dell CPUs at $1 each, in order to make it silly for them to use AMD?

Line Em All Up ... (0, Troll)

burdicda (145830) | more than 7 years ago | (#17862696)

We are all waiting for the same story to break out about

Quicken, Adobe Photoshop, and Autocad

What possible reason could these companies have for holding back
on recompiling versions for Linux ?

Just don't get it. (1)

thousandinone (918319) | more than 7 years ago | (#17862698)

I'm just not seeing exactly where the gain lies in this kind of action.

Intel pays Dell to carry only Intel's products, rather than AMD's as well.

In order to make this worthwhile to Dell, the payment has to be significant enough to not only outweigh the potential loss from NOT carrying AMD's project, but to also outweigh the legal risks that have suddenly become quite apparent. We're probably looking at quite a chunk of change here.

On the other hand, Intel still needs to make a profit, so they have to stand to gain from the deal, meaning that they have to make more money extra than they lose with the bribe, and preferably outweigh those legal risks at the same time.

These numbers are all arbitrary for the purpose of example. Don't criticize the exact values please.
Lets say the average Processor goes for 300, and the final product averages 1k, and Dell ships half Intel and half AMD, and is pushing a margin of 1k units, so 1mil cash coming into Dell, 700k after cost for the processors. Lets assume 80% of Dells customers dont care about the processor, 10% will NOT buy AMD, and 10% will NOT buy Intel. In this scenario, Dell loses 100 sales, or 100k out of 1mil, reducing their gross to 900k. Assuming they don't prebuy each processor, That drops them to 630k after processors- a loss of 70k per 1000 units that would have sold previously.

For Dell to break even with that loss of sales, Intel would have to pay 70k to Dell per 1000 units, or 70 per unit (nearly a quarter of their per processor rate in this model). To break even as far as gross sales go, Intel would have to sell 153 more units. This, however, would still be at a reduced percent profit. In reality, Intel would be selling 400 more units with this model, at roughly 75% of their former profit margin. 243k vs. 150k gross.

Of course, breaking even wouldn't be enough, given that there needs to be incentive for Dell to do this, and that there are potential legal issues involved. In this scenario, Intels bribe is 70k per 1000 units for Dell to break even, with Intel getting just under 100k extra in gross sales, not factoring in the lost profit margin per unit. Rounding it up to 100k, and giving all that to Dell for the sake of argument: Dell gets an extra 100k above and beyond what they would have gotten otherwise- a 10% increase in profits. Expanded over a larger volume, I'd say that that is just incentive enough to risk the legal issue in and of itself- but consider that by doing this, Intel actually grosses less than in the original model, and at a lower profit margin per each item as well. Obviously, the numbers wouldn't be anywhere near those, but the idea is the same. In this model, how does ANY side benefit?

Let's Analyze This (1)

Nom du Keyboard (633989) | more than 7 years ago | (#17862782)

1: The main culprit being given these days by many pundunts for Dell's current woes was their failure to switch to AMD processors earlier to remain competitive. CEO Rollins (now departed) said their customers weren't demanding it. Well I'm a customer, and I was demanding it over a year ago, in an actual letter printed on paper and USPS mailed directly to his office. IMHO Rollins couldn't listen, couldn't read, or both!

2: Dell is alleged to have received $1 Gigabucks kickback/payoff from Intel last year alone, and not accounted for it properly to its shareholders.

3: Dell is in deep $hit.

Analysis: Sticking with Intel so long was a bad move all around, and one that money alone cannot fully make up for.

Further Analysis: Michael Dell was very smart to have Rollins available to be the fall guy for the past 2.5 years of terrible results, and is now well rid of him just in time for a Dell resurgence that he will take credit for.

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