N.Y. lawsuit details Intel's 'largesse' toward Dell
An antitrust lawsuit filed Wednesday by the New York attorney general alleges a longstanding symbiotic relationship between Intel and Dell.
New York Attorney General Andrew M. Cuomo filed the federal lawsuit against Intel accusing it of paying computer makers rebates to illegally maintain its monopoly power and preventing AMD from gaining business with PC makers.
In a similar case earlier this year, the European Commission fined Intel $1.45 billion, alleging illegal rebates to PC makers such as Dell and Hewlett-Packard. AMD also made analogous allegations in its case filed against Intel in June 2005 that is slated to come to trial in March 2010.
And this may not be the last major case filed against Intel that makes these allegations. The Federal Trade Commission is also expected bring charges against Intel, according to reports.
"It is the AMD case filed 4.5 years ago. It's the same case the EU brought. There's nothing significant or new here that hasn't been discovered," Intel spokesperson Chuck Mulloy said about Wednesday's complaint filed by the New York Attorney General. "Neither consumers--who have consistently benefited from lower prices and increased innovation--nor justice are being served by the decision to file this case now," Mulloy said.
Doling to Dell
The complaint singles out Dell as a large recipient of Intel's "largesse," echoing the 2005 AMD lawsuit. Quoting often graphic exchanges between Intel and Dell executives, the suit alleges that Intel gave Dell massive rebates totaling in the billions of dollars over a period of, at least, several years. Hewlett-Packard and IBM, among others, are also cited in the complaint, but Dell is the focus of some of the most egregious Intel behavior, as alleged by the attorney general.
"We use both Intel and AMD chips and we do provide customer choice," Dell spokesman David Frink said Wednesday. Dell used Intel processors exclusively until May of 2006, when it adopted AMD chips for the first time.
"In pure dollar terms, Dell was far and away the leader in receiving Intel's largess," the complaint alleges. "For example, over the four-year period from February 2002 to January 2007, it received approximately $6 billion in 'rebates.'"
New York Attorney General Andrew M. Cuomo
(Credit: New York Office of the Attorney General)The complaint continues. "Most of this money was furnished to Dell under programs initially titled 'MOAP' and then 'MCP.' 'MOAP' was an acronym standing for "Mother of all Programs,'" according to the document. MCP stood for "Meet Competition Payments." Both referred to Dell's global percentage based rebates and to lump-sum payments made by Intel to Dell during the relevant period, according to the document.
Intel payments were "decoupled from particular products" and then later Intel would "create paper work at both Intel and Dell which purported to allocate portions of the total to individual CPU products," the attorney general alleges. (CPU stands for central processing unit.)
'Bid-bucking?'
Intel also allegedly used a "bid bucket" program against AMD. "Under this program, Intel encouraged Dell to make below-cost bids, with Intel subsidies, when competing against AMD-based server products," the complaint says.
And the attorney general cites a 2002 Dell document titled "Intel Funding Overview" that allegedly states that Dell loyalty to Intel means "no AMD processors." The complaint alleges that increases in Dell's MOAP was tied to excluding AMD products from its lineup.
The attorney general also makes some alarming allegations about the extent to which Dell's net income was tied to rebates. "A comparison of Dell's reported net income with the rebates it received from Intel for some quarterly periods show that, by 2004, the rebate payments amounted to more than a third of Dell's earnings," the complaint alleges.
The document continues: "In 2006, Dell received approximately $1.9 billion in rebates....and in two quarterly periods of that year, rebate payments exceeded reported net income. From February to April of 2006, rebates ($805 million) amounted to 104 percent of net income ($776 million). The following 3 months, between May and July of 2006, the proportion was even higher, 116 percent ($554 million of rebates and $480 million in net income)."
The complaint also discusses a period in 2004 when AMD was offering server processors that demonstrated "relative superiority" to Intel servers, according to a statement cited in the document made by Dell's "lead negotiator with Intel." Intel's negotiator with Dell queried Dell's lead negotiator about what Dell needed to "meet comp exposure." Dell's negotiator, e-mailed back: "This is really easy. MSD (Michael Dell) wants $400M more."
Furthermore, the document alleges that Intel punished Dell for expanding its lineup of AMD processors in September of 2006 by significantly reducing the size of the rebate. "Intel's retaliation was massive. For February, March, and April of 2006, Intel had paid Dell approximately $800 million in rebates; in the three-month period from November 2006 through January 2007--after it had first offered an AMD-based product--Dell received less than $200 million in rebates."
In the case brought against Intel by the European Commission, Intel claims that Dell was never pressured to use Intel products. In Intel's September 21, response to the European Commission's decision, the chipmaker asserts that "Dell has confirmed publicly that it always considered itself entirely free to choose to buy from AMD, without fear of reprisal or punishment."
The Intel document continues: "The record before the Commission contains sworn testimony of Dell executives that contradicts this essential premise of the Commission's case...Dell's affirmation of its freedom to choose its suppliers, which undercuts the central premise of the Commission's case, serves as a caution that the Commission's one-sided depiction of the evidence will not withstand scrutiny."
Brooke Crothers has served as an editor at large at CNET News, an editor at Dow Jones' Asian Wall Street Journal Weekly, and a senior editor at InfoWorld. His CNET blog covers chip technology and computer systems, and how they define the computing experience. He also contributes to The New York Times' Bits and Technology sections. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure. Follow Brooke on Twitter @mbrookec. 
Even when the article is right in front of you and you're commented on it.
The bases of the claim is that the more Dell bought, the cheaper they go the chips.
Its called discount on quantity! Thats all !
There was no secret in this.
And Dell has a VERY low margin or revenue compared to the sale of their items.
If you want to see a TRUE rip off and illegal action, look at Apple. Ripping off customers and breaking the copyright misuse doctrine left and right !
"look at Apple. Ripping off customers and breaking the copyright misuse doctrine left and right !"
Do you mind explaining?
In situations where only Intel could fulfil a whole order, the effect of Intel's rebate would be multiplied. Even fulfilling most of an order, AMD would still often have to be selling for far below the cost of production for either company in order to compete.
All these antitrust laws violate the rights of both sellers and buyers. It is time for the business community to start acting like human beings and stand up for their rights to produce and trade without interference.
No, really, the EU is doing a good thing. They are preventing powerful companies from toppling competitors. If intel continued it's practices, AMD would have died out, and we would have had to pay extremely high prices for intel products that cost less than half of what they would, and there would be no competing products to turn to.
Perhaps you do not recall, but back in the early 1900's corporate monopolies overcharged for their products because they destroyed their competitors, via unethical practices. It eventually became so bad, that the US had to pass laws preventing the growth of monopolies.
What intel is doing is nothing more than that; They are using unethical practices (such as paying vendors not to sell the products of competitors) in an attempt to squelch the competition. They tried to do this under the radar, but they have now been exposed. No company should be allowed to do this.
I dont know about you, but it is my belief that all companies deserve equal opportunity. Intel is trying to prevent this from happening.
My opinion is that the 1.3 billion dollar fine is not enough. I personally think that the fine should have been more than 3 times that much, with some profit going to AMD as compensation.
The absurdity of this subsidy is pointed out in this letter: http://www.freerepublic.com/focus/f-chat/2159310/posts (which is probably not a legit letter, but is still amusing).
Perhaps, Cuomo is simply trying to protect NY state's $1.2B investment.
BTW, the other 2/3rds of Globalfoundries is owned by Abu Dhabi. According to AMD's CEO, Abu Dhabi may be the next location for an AMD fab: http://www.business24-7.ae/Articles/2009/11/Pages/01112009/11022009_7f07cba3ab834af4af23b65efa551d42.aspx
Paying big fines and army of lawyers is just part of Intel's cost of doing business. They have a lot more to gain my eliminating competition and being a monopoly.
Paying big fines and army of lawyers is just part of Intel's cost of doing business. They have a lot more to gain by eliminating competition and being a monopoly.