Text 16216, 103 rader
Skriven 2007-02-17 20:02:32 av mike (1:379/45)
Ärende: Suit: Intel paid Dell up to $1 billion a year not to use AMD chips
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From: mike <mike@barkto.com>


http://money.cnn.com/blogs/legalpad/2007/02/suit-intel-paid-dell-up-to-1-billio
n_15.html

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Potentially devastating antitrust accusations against Intel (INTC) were buried
inside a recently filed shareholder suit against Dell Inc. (DELL). Though the
Wall Street Journal did write about the suit here, the allegations do not seem
to have attracted much attention. Maybe the suit got overlooked because it was
filed the same day Dell CEO Kevin Rollins quit, and founder/chairman Michael
Dell retook the company's reins. Or maybe people are just understandably
skeptical of naked accusations contained in shareholder suits brought by
class-action impresario Bill Lerach. (See earlier feature or post on Lerach.)

Still, the charges Lerach leveled in federal court in Austin on January 31 are
hard to ignore. For one thing, they are tantalizingly detailed--describing, for
instance, the goings on at "weekly server group staff meetings" and "quarterly
server group town hall meetings" at Dell--suggesting that a Dell insider might
be cooperating with Lerach. In any case, if the claims turn out to be true, the
Olympian reputations of Intel founder Andy Grove and Dell founder Dell could be
due for some unflattering makeovers--like those endured by sluggers Mark
McGwire and Barry Bonds after the BALCO steroid inquiry.

Lerach's suit alleges, among other things, that from at least 2003 to 2006 Dell
received massive, undisclosed, end-of-quarter rebate payments from Intel in
exchange for Dell's agreement not to ship any computers using microprocessors
made by Advanced Micro Devices (AMD). The payments were allegedly never less
than $100 million per quarter and, in at least one year, totaled about $1
billion. (During this period Dell represented about 20% of the worldwide market
for the x86 processors both Intel and AMD made.) Intel forbade Dell from
disclosing the payments, the complaint says, so as not to draw scrutiny from
antitrust regulators. The payments were allegedly known to only about 15 top
Dell officers, and were negotiated with personal involvement by Grove, Michael
Dell, and Rollins. Since 1999, according to the complaint, Dell Computer would
secretly design AMD-powered computers every year, but it would never ship them
"due to the large sums of money the Company would lose from Intel for breaching
the exclusive Dell/Intel processor relationship." These payments were allegedly
in addition to, and nearly an order of magnitude larger than, the "market
development funds" that Intel was known to be paying Dell and other customers
under co-branding programs like "Intel Inside." Lerach's suit, which is brought
on behalf of several institutional Dell shareholders, alleges only securities
law violations, not antitrust claims, and names Intel and
PriceWaterhouseCoopers (Dell's accountants) as co-defendants.

A Dell spokesperson declined comment on the suit. In a telephone interview,
Intel spokesman Chuck Mulloy was extremely dismissive of it. "Our preliminary
review suggests that much of it is largely made up," he says. "We plan to move
very quickly to defend ourselves." He also stresses that neither the SEC nor
Justice Department investigators have ever approached Intel in connection with
their on-going probe of accounting issues at Dell, which started, according to
Dell's disclosures, in August 2005. That SEC probe is thought to focus on
possible earnings manipulation relating to the way Dell accounted for warranty
revenue and expenses.

Still, Lerach's allegations have a ring of plausibility about them, in that
nearly everyone in the industry has wondered why it took Dell until late 2006
to begin offering AMD-powered computers, when AMD's microprocessors were widely
seen as having attained technological superiority over Intel's by early 2003.
The complaint's accusations also raise eyebrows because they dovetail so
explosively with allegations AMD made in a mammoth antitrust suit it filed
against Intel in Delaware federal court in June 2005. (See "Intel's Worst
Nightmare," here, about that case.) (About 80 antitrust class actions have
subsequently been filed against Intel on behalf of consumers seeking treble
damages from Intel for allegedly having paid inflated computer prices.)

The centerpiece of AMD's suit was the claim that Intel was paying so-called
loyalty rebates to numerous major computer makers in exchange for varying
degrees of exclusivity--80%, 90%, and, in some cases, 100%. In March 2005 the
Japan Fair Trade Commission had found that Intel was, indeed, paying such
rebates to five major Japanese computer makers (presumably Sony, Toshiba, NEC,
Hitachi, and Fujitsu, though the companies are unnamed in the public version of
the JFTC order) and that the rebates violated Japanese competition law. (Intel
settled the JFTC matter shortly thereafter without admitting wrongdoing.) In
its suit AMD alleges that Intel has been paying manufacturers so-called
first-dollar rebates, meaning that at the end of the quarter, if the customer
has achieved the level of exclusivity Intel seeks, it will get a retroactive
discount on every Intel processor it purchased that quarter; if, on the other
hand, it falls short, it gets nothing. Unlike conventional volume
discounts--from which consumers can only benefit--many competition authorities
believe loyalty rebates can become illegally coercive and exclusionary when
offered by a dominant industry supplier. (Intel supplies about 80% of the
worldwide market for x86 processors.)

Intel has so far insisted--notwithstanding the JFTC ruling--that it does not
use such rebates. "We don't buy exclusivity," Intel general counsel Bruce
Sewell told Fortune last fall, staking out the position his company still
stands by. "We offer a discount program," he said then, "which is stepped at
basically 20%, 40%, 60%, 80%. So if you buy below 20%, you get no discount. If
you buy 20% to 40%, you get a discount, but it applies only to the units
between 20% to 40%. . . . You don't have this dramatic incentive, where you get
nothing below 90%, and everything above 90%. In our view, this is a very
traditional discount that scales with volume."

CORRECTION: Earlier version incorrectly referred to Bobby Bonds, when I meant
his son, Barry. Thanks to "Bob in St. Louis" for noticing.
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 /m

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