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."

Comments

Say it ain't so!

[TheJerg]

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...

[MidVicious]

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]

Opinion Center

[corby]

Sounds like a great article for the Intel Opinion Center!

An accountant, a Lawyer, and an Engineer

[Shadow Wrought]

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?"

Big deals sometimes have provisions

[alexhmit01]

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:Anti-dumping laws

[udderly]

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.

Re:under the table?

[Red Flayer]

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.