Dell sued for Intel kickbacks

Author: Brett Thomas
Published: 5th February 2007
Comments (11) Stumble
Dell sued for Intel kickbacks

"Dude, you got a lawsuit." - Investors are filing suit over Dell's alleged kickbacks from Intel.

It seems the resignation of Dell's former CEO Kevin Rollins wasn't without cause - news has hit the wire hard today about a lawsuit filed against the computer manufacturer on behalf of its investors. Apparently, all of the mean-spirited talk by AMD that Dell was being given kickbacks for remaining exclusive to Intel weren't really made up after all.

The purported kickback scheme is something that had never really been proven, but often theorised. As long as Dell kept its products exclusively Intel-based, Intel lopped off a bit of the chip cost each quarter for the next quarter's order. It's estimated that the kickback was a whopping $1 billion per year - enough incentive to keep Dell quite happy until AMD's original monopoly lawsuit.

Though offering a bulk sales discount is far from uncommon practice in any industry, the break that Intel gave greatly undercut its offerings to much of the rest of the market, and allowed Dell to make systems that were far cheaper than competing products. This promoted unfair advantage to both companies, which used the breaks the other provided to minimise competition and increase their own brand strengths.

As interesting as the monopoly aspects are, though, what's more interesting is the new suit - it's brought on behalf of investors, not competitors. Investors in Dell are worried about how the kickbacks artificially increased the company's profits - since they were undisclosed (they just reduced the cost of buying parts, so get hidden in the paperwork), they made the company look better than it actually was. Now that the exclusivity is over, so are the kickbacks - a reality which could send Dell's stock for a tumble as its costs soar.

The suit names both Michael Dell and Kevin Rollins, as well as the company proper and its accounting firm. By the sound of it, it's not so much about the deal existing as it is about how the transaction was (or wasn't) reported, which could have pretty big consequences to the company's bottom line.

Have you got a thought on the issue? Tell us about it in our forums.
Quote DougEdey 5th February 2007, 19:14
I thought Michael Dell was coming back to the company because of this?
Quote HourBeforeDawn 5th February 2007, 19:48
is this one of a few events marking the beginning of the end of Dell... lets hope so

ya ya I know if your a business your treated well by Dell, if your a customers well your treated like dirt and its complete BS.

So how many lawsuits does this make it lol I wonder if Dell will go down as the most sued computer manufacture?
Quote DXR_13KE 5th February 2007, 20:20
holly crab.... dell shares will start to be worth lot less than they are now...... they are F***ed.
Quote randosome 5th February 2007, 20:35
funny problem there, i mean technically Intel are well within their rights to give dell bulk discounts, but whether that counts as bribery, and anti-competitive
Well i'm not a lawyer so i don't know, but $1bn seems like a lot - but dell do make a lot of PCs
Quote Bluephoenix 5th February 2007, 20:43
Maybe they will actually have to make some decent hardware now that they must compete with everyone else. Hopefully they will also stop using proprietary re-wiring of connectors, to reduce the costs of building the systems and also to not irk the s*** out of customers when a part breaks.

IMHO Dell still = suck
Quote Swafeman 5th February 2007, 21:05
Surely this is just economies of scale? They get much better economies and can undercut everyone else, but as the worlds biggest computer seller, and using intel only they will be buying huge amounts of cpus, so surely they should be allowed a bigger discount?
Quote Devil Bunny 5th February 2007, 21:57
The point is that they only got the "discounts" if they stayed exclusive to Intel. I dont think the law would consider that as a bulk discount since they had to stay exclusive to one company to get it.
Quote trig 5th February 2007, 22:03
doesnt matter...the us government is in michael dell's back pocket...so don't be surprised if it all just "goes away"
Quote TheoGeo 6th February 2007, 00:39
Quote:
Originally Posted by trig
doesnt matter...the us government is in michael dell's back pocket...so don't be surprised if it all just "goes away"
naa, its received too much press attention already.

this really doesn't suprise me, it was always very strange how dell refused to sell AMD processors and i guess this is the reason. Hopefully this will mean that AMD will have a chance to show what they can do.

unfortunate how this has come out after AMDs few years of rule on the processor performance side had ended, maybe it would have given AMD a huge boost when it could have done with the support of dell.
Quote Colonel Sanders 6th February 2007, 05:34
Why is there a cycle with prebuilts- they treat their customers good, then everybody and their dog starts buying from them not caring if they are a good deal or not and then the - used to be good company becomes your worst nightmare. I'm glad I build my own.

L J
Quote mikeuk2004 6th February 2007, 12:09
Didnt need to start a new thread. Could of continued the "Dell back under Dell's control" thread as I had posted this news on there already. way before. Nevermind.

Nothing new really with Intel paying a company to only sell Intel chips. Funny how Sony only sold Intel.

Mind you Sega lost out with the Dreamcast because Sony bribed shops to only stock playstations.

It happens and needs to be clamped down on.
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