Dell’s fraud settlement reveals Intel bribery
We know that Intel actively sought after OEM makers to use Intel-only components in their builds. AMD was rewarded a handsome $1.25 billion settlement out of litigations against Intel in November 2009. What I didn’t know at the time is how much Intel actually paid in form of ‘bribery’ to large PC makers to maintain their monopoly.
So the supplier made financial arrangements (in the form of credit memos rather than “payments”) to ensure its number one customer maintained exclusivity. These had been going on for many years in the form of ‘Market Development Funds’ – but new inducements (initially dubbed MOAP, or Mother Of All Programs) were introduced in around 2001, on top of the MDF programme. These were so great that over a five-year payment, the supplier ensured the purchaser traded in the black for five years.
Intel’s rebates amounted to 38 per cent of Dell’s operating profit in the fiscal year 2006, and rose to 76 per cent (or $720m) in one quarter alone, Q1 2007. While almost all of the Intel funds were incorporated into Dell’s component costs, Dell did not disclose the existence, much less the magnitude, of the Intel exclusivity payments.
The Register reported this early on and then later about IBM and HP:
New York State’s lawsuit suggests that the reach of the funding was wide indeed. It alleges that IBM benefited by $130m from Intel simply for not launching an AMD product. HP benefited by almost $1bn. Again, you might suppose Intel might have found better use for such resources – such as R&D.
That is a lot of money indeed. For all of that Intel could have put out a better architecture. If I was Intel, I would have chosen to lose a little bit of market share for future technological leap. But that doesn’t matter, after all the fine barely made a dent on Intel’s balance sheet. The consumers were the true victims.
