Dell accused of getting $6 billion from secret Intel pact (to screw AMD)

(they finally nailed them for what we all KNEW was happening)

Dell accused of getting $6 billion from secret Intel pact
New York's Cuomo names Intel in antitrust lawsuit (Nov. 4)
By Ben Charny

SAN FRANCISCO (MarketWatch) -- Dell Inc. allegedly received billions of dollars in payments over a four-year period to use chips made by Intel Corp. Payments that sometimes totaled more than the computer maker's reported profits for a fiscal quarter, according to a lawsuit filed on Wednesday.

Dell, the world's third-biggest computer maker based on shipments, was allegedly paid about $6 billion between February 2002 and January 2007, according to the lawsuit. In one fiscal quarter, the lawsuit says payments from Intel constituted 116% of Dell's reported net income.

The allegations against Intel are part of an 83-page lawsuit filed by New York State Attorney General Andrew Cuomo. The lawsuit alleges Intel paid computer makers to discourage them from using chips made by competitor Advanced Micro Devices Inc. Other computer makers alleged to have dealt with Intel include Hewlett-Packard Co. and International Business Machines Corp.

The lawsuit doesn't specify whether Dell is currently receiving payments similar to the ones alleged. But a footnote says "there is evidence that Intel continues to apply pressure to Dell to minimize AMD's ability to compete effectively."

The supposed payments raise questions about Dell's health, suggesting the Round Rock, Texas, company relied on subsidies from Intel to maintain its level of profitability. Dell has struggled to cut costs and streamline its operations to catch up with competitors, like H-P. The suit "could impact Dell's profitability," said Shaw Wu, an analyst at Kaufman Brothers.

Dell declined to comment. Intel said it would defend itself. A Hewlett-Packard spokeswoman declined to comment.

AMD said the suit "details explicit evidence of Intel's harm to U.S. consumers and computer manufacturers."

An IBM spokesman said the company cooperated with requests for information from the government and the company believes it conducted its business appropriately.

The lawsuit alleges that Dell received more money than any other computer maker.

"In pure dollar terms, Dell was far and away the leader in receiving Intel's largess," the lawsuit says.
"Dell understood that the primary purpose of the various 'Intel Funds' was to keep AMD (central processing units) out of Dell computers and servers," it says later.

Under a Secret arrangement once-called the "Mother of all Programs," Intel paid Dell a rebate based on the total value of chips the computer maker bought, according to the lawsuit.
The percentage of the rebate varied but reached up to 16% as Dell contemplated using AMD products.

The payments were so large that in 2002 Dell stopped considering the introduction of some products using AMD chips when Dell worried that Intel would end about $250 million in payments and give them instead to competitors, according to the lawsuit.

As part of the agreement with Dell, Intel set up a "bid bucket," through which Intel subsidized Below-Cost bids by Dell against competitors selling AMD-based computers and servers to large businesses, the lawsuit says. The program's purpose was to "Stop AMD" from successfully winning new accounts, according to the suit.

The alleged payments dropped off in 2006 after Dell began using AMD chips in some of its products. Still, Intel paid Dell around $200 million between November 2006 and January 2007, about 29% of the Dell's net income for the fiscal quarter ending Feb. 2, 2007.

http://www.marketwatch.com/story/dell-accused-of-getting-6-billion-from-secret-intel-pact-2009-11-04

 

What I don't get is why governments worldwide are going after Intel now, rather than about a decade ago when it started happening, or several years ago when AMD started complaining.

Something seems fishy about the timing of all this.

By the way, they haven't "nailed" Intel just yet... After all, it's innocent until proven guilty.

 

I have a gut feeling that Intel threatens manufacturers to not carry/promote AMD products. Just from my time on this forum, I've seen the mention of laptops with AMD chips decline consistently. However, there's also the point that Intel chips have again and again outperformed AMD's. I'm definitely interested to see how this turns out.

 

They do threaten manufacturers (or at least bribe them) not to carry/promote AMD products, much in the same way MS bribes them not to use or promote Linux/Firefox/(insert competing product here). The Europeans proved that in court earlier this year.

What I'd like to know, though, is why everyone is getting on Intel's case all of a sudden. Before the EC fined them a billion euros or so, nobody cared - even though it's been an open secret for years now.

 

I remember when AMD was king, but yet PC manufacturers would not carry the processor, instead they had crappy Pentium 4's.

I wouldn't doubt that there was a bit of money under the table.

 

This is not a huge surprise but to be honest I have never given it much thought other then hmm dell never has anything amd, I won't be childish and say that in the real world of business this stuff doesn't happen but those are some big numbers!

 

It's just the standard the-wolf-pack-going-after-the-wounded-beast mentality. That, added to the fact that it takes many years for these lawsuits to get processed, has all the suits against Intel happening right about now.

I can't say I mind too much about Dell having a deal with Intel - that just gives Dell slightly more room to cut prices, so Dell's Intel products are a bit more affordable for the end consumer. As AMD's current mobile CPUs leave so much to be desired in terms of power usage and heat output, I don't find it necessarily a bad thing for me, the end consumer.

 

You've got to look at the bigger picture here. AMD is in heavy debt today and couldn't leverage the tech advantage it had over intel when it had it into $$. $$=R&D. You dont think that plays into the capability of AMD to offer more competitive options right now?

 

Intel or no Intel, they would've squandered most of that $$ on ATI anyway.

While I certainly won't side with Intel, to be honest I actually don't think Intel's monopolistic behavior is the main reason for AMD's current woes. Certainly, it's one factor, but given how they finally managed to get a toehold into most OEMs doors (and an entire foothold into HP's door) during the height of the illegal rebate era, I'd say that the rebates weren't as effective as Intel had hoped and other, bigger problems overshadow this one in the bigger picture. Like them buying ATI which drained them of all their hard-earned cash at a critical point in time.

 

And they did squander that on ATI anyway, so all of that $$ would have been gravy...

 

This is a very good point.
For a few Years AMD had the better processors but Dhell and other wouldn't put them in their computers.
We now know why.

AMD could have won many big Converts like Dhell and been a much larger competitor now. Like Ford vs GM instead of the lopsided situation we have now where Intel has 58% gross margins they brag about to Wall Street; but made possible by Predatory practices and higher prices to US.

Dhell also hurt it's customers both in the short and long term by taking this Payola from Int-hell to screw AMD .. and us.

PS: Now refuse to just to regularly type in the name D-e-l-l as it's get's highlighted/ADVERTISED/Hot-linked by this site when doing so.
a practise I wish this site would lose.

 

I thought that was quite slick of Intel. Even though the practice is nothing new. It happens all the time in the real estate industry.