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Dell's Intel Bias Caused By Under the Table Cash?
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."
I could have sworn I've seen Dell selling machines with AMD CPUs.
(IANAL)
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.
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]
Sounds like a great article for the Intel Opinion Center!
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
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?"
If brevity is the soul of wit, then how does one explain Twitter?
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.
Discounts go to the company (shareholders). Under the table cash goes to the ones who arranged the deal (executives).
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.
I am a free slashdotter. I will not be modded, blogged, DRM'd, patented, podcasted or RFID'd. My life is my own.
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.
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.
Mmmm.. Donuts
It's called predatory pricing. 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.
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.
I'm a consultant - I convert gibberish into cash-flow.
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.
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.
From AMD's complaint about Intel's unfair business practices, emphasis mine:
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.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
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."
I'm a consultant - I convert gibberish into cash-flow.
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?"
Done with slashdot, done with nerds, getting a life.
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.
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.
Michael Dell has handed the CEO reins back to Kevin Rollins.
My beliefs do not require that you agree with them.
*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 was with you up until:
Very similar to the concept of a government security clearance.
How do you mean? Speaking as someone who had a security clearance, it doesn't entitle you to free stock tips on the golf course, or really anything else particularly interesting. It's more just a prerequisite for employment; the biggest benefit is that it makes you look like a more attractive employee when certain companies are looking for staff.
"Ladies and gentlemen, my killbot features Lotus Notes and a machine gun. It is the finest available."
What about those that swing both ways?
What's wrong with paying another company to carry only your products?
If you have a dominant position in the market, it may violate antitrust law.
Selling at a low price is fine, always. But if you have a dominant position in the market, there are things that you aren't allowed to do:
You can't sell below cost, called dumping. The tactic is to bankrupt the competition and raise prices after they're gone.
You can't bundle products together so as to create a monopoly in a new area by tying to products from an existing monopoly.
You can't punish customers for buying from a competitor. Reward them for buying from you, yes. Punish them for buying from the other guy, no.
If you don't have a dominant position in the market, you can do those things. Sell below cost, buy market share, and the competition will have its chance when you run out of money. Sell unpopular products by bundling them with popular products, and watch your popular products become less popular. Require exclusive contracts, and watch customers switch to vendors willing to satisfy customer needs. You can do these things because market forces will correct attempts to manipulate the market. Under normal conditions, the market will reward efforts to compete and punish efforts to inhibit competition.
But a company can have a commanding position in a market, such that they aren't hurt much by tactics which reduce, inhibit, or eliminate competition. That's where antitrust laws come in. If you can get away with actions that stifle competition, then you are a monopoly in the legal sense, if not the pedantic sense beloved by shills. That's how the court determine if you are a monopoly. If you can raise prices without losing sales, you may be a monopoly. If you can afford to sell below cost until the competitors are out of business, then you may be a monopoly. If you can force unfavorable contract terms on your customers without losing them, you may be a monopoly.
Rewarding Dell for buying from Intel is one thing, and rewarding Dell for helping drive AMD out of business is another. The distinction between gaining sales for Intel and punishing sales by AMD can be subtle, and that's what the courts will wrestle with.
> The only way to comply
That's the nature of a government which has too many laws. Each law is selectively enforced (abused) only when it serves the convenience of those who write the rules and are in control.
> It's a legitimate way of doing business
Only insofar as the people conducting legitimate insider trading are in the good graces of those who hold the authority to order investigation and prosecution.
That's why Martha Stewart received such a light sentence. She fell out of the good graces of some people but retained the favor of others who kept her from sitting in prison for much longer.
the NPG electrode was replaced with carbon blac
Bias-free semiconductors never really took off.
Cheers,
Toby Haynes
Anything I post is strictly my own thoughts and doesn't necessarily have anything to do with the opinions of IBM.