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July 26, 2010

Dell settles with the SEC

Filed under: News — Tags: , , , , — Nate @ 8:52 am

This story makes me sick. Everyone in the industry knew it was going on, several years ago Intel was paying off their customers to stick to their products, and not deploy the superior Opteron processors. Intel’s strategy to convert the world to Itanium was going down in flames thanks to AMD’s extension of x86 – x86-64, combine that with a superior hardware architecture derived from the Alpha (and created by many former engineers who worked on the Alpha – AMD hired many of them). Whether it was the hypertransport design, the itnegrated memory controllers, multi core designs. In so many areas AMD was showing such massive innovations the only way Intel could respond at the time was by paying their customers to not use their stuff.

In no place was it more obvious than Dell. A company that myself I’ve never had respect for for other reasons(biggest being they don’t innovate at all outside of their supply chain). Dell was the only big OEM that did not use AMD processors at all for the longest time.

The Register has posted a couple of articles on this recently with Dell settling with the SEC for a mere $100M.

What upsets me more than anything else, is not the fact that this went on, but the pocket change of penalties that resulted. Intel paid AMD $1.25 billion to settle all outstanding legal cases last year, a small fraction that otherwise should of been paid. Dell pays only $100M, maybe that’s enough for the SEC, but on anti trust grounds it should be far more. $100M is not a deterrent. It accounts for a small fraction of what Intel paid them!

Same goes for the settlement Intel paid to AMD, I have absolutely no doubt, as you should have none as well, that Intel benefited FAR more than the $1 billion paid to AMD. It should of been $10 billion, if not higher. Intel wrote that settlement off in one quarter!

It really is depressing to see these big companies get away with this sort of thing. Whether it’s Dell, or Intel, or the recent Goldman Sachs SEC settlement. The penalties are pocket change compared to what they should be to make it a real deterrent. And moreover, individuals are not punished in a lot of cases, the company takes the hit, and of course in all cases nobody ever admits any wrong doing. Goldman, like Intel wrote their settlement off in one quarter!

Dell wasn’t alone, we all knew it but no other OEM was being so blatenly obvious in their strategy.

Intel’s rebates amounted to 38 per cent of Dell’s operating profit in the fiscal year 2006, and rose to 76 per cent (or $720m) in one quarter alone, Q1 2007. While almost all of the Intel funds were incorporated into Dell’s component costs, Dell did not disclose the existence, much less the magnitude, of the Intel exclusivity payments.


New York State’s lawsuit suggests that the reach of the funding was wide indeed. It alleges that IBM benefited by $130m from Intel simply for not launching an AMD product. HP benefited by almost $1bn. Again, you might suppose Intel might have found better use for such resources – such as R&D.

A lot of the big companies do this sort of thing, it’s a wonder that tech startups even bother to start up anymore when there is really nobody keeping the playing field fair. One other similar despicable business deal which I was informed from two different people on both sides of the table was a networking deal Cisco was competing with AT&T for along with some other vendors. AT&T was(and probably still is) the largest user and re-seller of Cisco gear. The competition was the obvious players there’s only so many out there! Anyways the deal went down, Cisco lost hands down on many accounts. Their technology just isn’t competitive in so many areas. So how did Cisco respond? They came back to AT&T with 95% off list pricing. They bought the business. They didn’t win on any real merits, they took a major loss on the deal, which will result in all of their other customers having to continue to pay more to compensate for that. That just makes me sick.

But nothing seems to be on such a grand scale as what Intel did to keep AMD at bay. It was shocking to me seeing the pundits saying “oh well the consumer wasn’t hurt by those practices”, not taking into account how close AMD came to the brink, with their massive(still massive!) amount of debt they have incurred over the years. An incredible market opportunity for them was there for several years, something Intel kept small by throwing cash at their customers because they had nothing else to offer.

Intel can’t afford to lose AMD from an anti trust standpoint, but they also don’t want them to succeed too much, a pretty fine line they walk.

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