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.
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.
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