

Intel Paid Dell $4.3 Billion to Pad Earnings From 2003 to 2006 - alain94040
http://www.nytimes.com/2010/07/23/business/23dell.html?_r=1

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noonespecial
_The exclusivity payments constituted a steadily growing part of what Dell
reported as its operating earnings, from 10 percent in fiscal 2003 to 38
percent in the fiscal 2006, then jumping to 76 percent in the first quarter of
fiscal 2007, the S.E.C. said._

One more year and they could have quit selling poorly made computers
altogether and made a business out of not using AMD.

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TGJ
_Michael S. Dell, chief of Dell, agreed to pay a $4 million penalty but did
not admit responsibility._

That's a big reason why this stuff just keeps happening.

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raganwald
My knee-jerk, emotional reaction is to say that this is America's corporate
culture. Executives don't accept personal responsibility for anything, ever.

And now to the SEC or whomever accepted the M$4 settlement. This is
ridiculous. What is the point of pursuing someone if not to end up with the
equivalent of a "conviction." How is collecting cash from someone who admits
no wrongdoing different from being bribed to find them innocent?

If I were in charge of the SEC, I would put findings of wrongdoing ahead of
collecting cash penalties. Money is irrelevant to wealthy individuals. The one
thing they cannot afford to spare is time. I would relentlessly pursue them
with subpoenas, prosecutions, and the threat of actual jail time in order to
force them to admit wrongdoing.

Settlements would involve community service, not money. Michael Dell needs to
take some time off his business and read books to children in the library or
perhaps help high school students with their math homework.

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Unseelie
To follow this up: M Dell is worth about 12 billion. 4 million? The easy way
to compare it is by portion, in which case he's just paid, say, a fine of five
hundred dollars in terms of an average person. But rationally, that marginal 4
million will have even less affect on Dell's lifestyle than the $500 would on
a blue collar citizen.

The money doesn't matter.

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ewjordan
TRWTF here is who the hell at Intel thought it was a good idea to be making
seriously large cash payments to another company so that they would not use a
competitor's product...really, guys? I thought you were smarter than that.

While I'll certainly admit that anti-trust rules have some gray areas where we
could argue the relative utility of actions against monopolies or near-
monopolies, this is not one of them. I doubt if even the most die-hard laissez
faire types would argue against going after Intel here - if cheating like this
is not forcefully dealt with the whole idea of a free market eats itself by
its own asshole.

Did they seriously think they'd get away with this, or did they just figure
the ultimate cost (cash spent + whatever penalties they are subject to once
caught) would be worth it?

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siculars
Um, yes. Unless anyone is being arrested for a criminal offense, than yes.
They did think they would get away with it - and they have. Neither the words
"criminal" nor "jail" were even in that NYT article.

Sad fact is that the entire fiasco was a simple business decision. No one goes
to jail, and if they are caught they simply pay a fine.

Personally, I think every signature on their SEC fillings during that period
should do jail time. But hey, what do I know.

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byrneseyeview
This is a little weird. It's not 'padding' earnings, since Intel really did
pay them the money, and they really did make it. What the SEC is saying is
that they didn't tell investors that there was a risk, here. But the risk was
"If we think using AMD is worth losing these payments, we'll do it."

That's not terrible. It's like saying "If we think our CEO is incompetent, we
may hire someone else, even if we have to pay him more." Yes, that's a hidden
risk to earnings.

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spinchange
No way. This is accounting fraud, plain and simple. It was a massive cash
kick-back from a supplier that was disguised as regular earnings or revenue to
keep Wall St. expectations and Dell's stock price up.

Who knows how much Dell and other managers in the know profited from this by
cashing out stock or options for years while the rest of the investing public
held the bag? They should probably be in jail.

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byrneseyeview
But the point was that Intel was paying them, presumably in order to not do
something that would harm Intel. So it makes sense to keep accepting that
payment until the costs exceed the benefits.

Are you contending that Dell would not have recouped _any_ of that rebate
money by working with AMD? If so, why would Intel pay so much? In theory, just
paying Dell $1 would be enough.

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joubert
From Dell's Corporate Governance Principles:
([http://www.dell.com/content/topics/global.aspx/about_dell/in...](http://www.dell.com/content/topics/global.aspx/about_dell/investors/corp_gov/corp_gov?~ck=ln&c=us&l=en&lnki=0&s=gen))

 _Ethics and Values The Board and management are jointly responsible for
managing and operating Dell’s business with the highest standards of
responsibility, ethics and integrity. In that regard, the Board expects each
director, as well as each member of senior management, to lead by example in a
culture that emphasizes trust, integrity, honesty, judgment, respect,
managerial courage and responsibility._

Crappy hardware, crappy ethics.

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ramchip
I am honestly amazed by the capacity these people have to spew bullshit.
Apparently that was his answer to this:

 _Mr. Dell said, “We are pleased to have resolved this matter. We are
committed to maintaining clear and accurate reporting of our periodic results,
supporting our customers, and executing our growth strategy.”_

How is it possible to say this with a straight face? I find this comment very
insulting. Compare this to, say, the Toyota CEO.

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patrickgzill
Seems that Intel rebated Dell, rather than give them better pricing off the
bat, otherwise they would have had to offer the same pricing to everyone else.
By making it a rebate, they avoided this.

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anamax
Intel would only have to offer the same "Dell-special" price to folks who have
the appropriate contract terms. (Dell doesn't buy off the standard price
sheet, if Intel even has one.)

However, there may be companies that have a "no one gets a better price" deal.
This may give rise to a breach of contract suit or possibly fraud.

And then there's the US govt. The law says that the US govt has to get the
lowest price.

Of course, Intel can give volume discounts to Dell that the govt doesn't get
if the govt doesn't do the same volume, but if Intel told the govt that it was
getting the best deal and Dell's deal was actually better ....

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spinchange
Nothing like buying your way out of massive financial fraud. What happened to
Sarbanes-Oxley and all that post-Enron & Worldcomm legislation?

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ramchip
Registration wall, can someone paste the article here or link to a copy?

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JoachimSchipper
There's this little thing called copyright. (There's also BugMeNot, which
usually works.)

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ramchip
I tried Bugmenot before posting, it did not work.

I know about copyright. I tend to ignore it when I believe that breaking it
would have no negative effect nor consequence. Your sense of morality may
vary.

Answering my own question, here's a similar article:
<http://www.kbc.co.ke/story.asp?ID=65474>

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josefresco
Has there been any information released on why Dell was doing so badly in 2007
when seemingly everyone else was doing well? Is Intel paying other companies
to be exclusive which is inflating their earnings? Makes you think twice about
the top PC makers and who's really #1. Would love to read more about how/why
it jumped to 76 percent.

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known
"Business? It's quite simple. It's other people's money." --Alexandre Dumas

