SEC airs Dell and Intel's dirty laundry

Opinion

SEC airs Dell and Intel's dirty laundry

For years the industry questioned how the unstoppable Texan juggernaut Dell was a dead cert to meet quarterly expectations on Wall Street, and now we have the answer - with a little help from its friend Intel.

The investigation into the relationship between the PC maker and the chip giant has unearthed some very interesting statistics; in every quarter between 2002 and 2006, Dell would have fallen short of sales targets had it not been subsidised by Intel.

The partnership was built on the understanding that Dell did not integrate AMD chips into its hardware.

In Q4 2004 Intel handed Dell $25m to meet a forecasted shortfall in Dell's numbers; Intel hand-outs accounted for 38% of Dell operating profit in 2006 and in fiscal Q1 2007 payments from the chip producer represented 76% of Dell operating income.

So paranoid was Intel about the relative performance of AMD's server chips that it even set up an "Opteron Fund" to financially reward Dell for steering clear of its rival.

However, Dell finally buckled to demand and in May 2006 introduced AMD Opteron based servers, which is the time that Intel slammed shut the corporate wallet resulting in a 36% fall in profits for Dell that quarter.

Dell has been fined $100m by the SEC for false accounting between 2001 and 2006 but the company admitted no wrongdoing, as is consistent with the regulator's standard practise. It has already made provisions for this settlement.

It rather beggars the question if the loss of rebates from Intel in part forced Dell to develop relationships with the channel to cut its own costs in the face of falling profits.

Michael Dell famously said that direct selling was not a religion, but it did a pretty good job of brain washing customers that resellers added little value to the supply chain.

But that is all history, as is Dell's almost metronome ability to meet quarterly targets that kept financial analysts in constant amazement.

 

This was first published in July 2010

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