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.