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How Intel Kept Dell Afloat

The payment that kept Dell from buying a piece of AMD was only $40 million

If it was up to AMD, the SEC's complaint against Dell would be required reading especially pages 10-28 where the agency explains in gory detail how Intel paid Dell $4.3 billion between 2001 and 2006 so it wouldn't sell any AMD-based machines and how Dell needed the money to meet Wall Street estimates and wouldn't have met a one of them for 20 straight quarters without Intel's desperate largesse.

The SEC even discovered that in September of 2003 - after the Xeon-beating AMD Opteron hit market - Dell was negotiating to take a stake in AMD and use its chips in 25% of products, an eventuality that Intel headed off by upping what was called its "Meet the Competition Program" or MCP rebates coupled with large gratuitous lump-sum payments meant merely to keep Dell afloat and Intel-pure.

The payments, negotiated by the top management of both companies, were hidden under a load of utter balderdash concocted for the occasion while Dell officials ascribed its performance to utter fabrications.

The payment that kept Dell from buying a piece of AMD was only $40 million. Ten quarters later it had ballooned to $318 million and that's on top of the $405 million Dell got in rebates that quarter.

Between times, Intel ran into a bit of a roadblock in increasing the payments, the SEC says, when Intel and Dell offices in Europe were raided by the European regulators. Still Intel managed to bump up its lump sum payment from $81 million to $119 million on top of rebates of $313 million and its money worked out to 37% of Dell's alleged operating income.

When Dell wanted to announce AMD machines in May of 2006 Intel upped the ante and paid Dell $723 million and promised it another $200 million over two quarters. By then Intel expected to be able to meet the Opteron challenge. Finding the bounty irresistible, Dell canceled its planned May 4, 2006 AMD announcement. The Intel payments that quarter worked out to 76% of Dell's supposed operating income but by dint of miscalculation Dell still missed Wall Street estimates by a nickel.

When Dell finally announced that month that it would have AMD machines by the end of the year, Intel reportedly cut its payments, Dell's operating income plummeted, and investigations of its accounting practices started.

See http://www.sec.gov/litigation/complaints/2010/comp21599.pdf.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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