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Dell fined $100m for Intel deal ‘deception’

by Sarah Griffiths on 26 July 2010, 15:36

Tags: Dell (NASDAQ:DELL)

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Mixed messages

The New York Times reported that Kevin Rollins, Dell's CEO in 2004, told the SEC that Dell managed to meet or beat Wall Street's expectations for 12 successive quarters due to its "tightly controlled supply chain, highly efficient infrastructure and direct relationships with customers."

However, at the same time he reportedly wrote to Michael Dell telling him payments from Intel had "made up the quarter" for three quarters and said it was "a bad way to run the railroad."  The SEC said Rollins told Dell "We are going to have to get off their [Intel] drug"

The executives at Dell did not tell investors their quarterly targets were being met or exceeded because of kickbacks from Intel which peaked and dipped according to Dell's financial needs, rather than how it tweaked its supply chain, according to the SEC.

It said emails referred to the company having to ‘beg' for money from Intel to meet its quarterly targets.

Dell announced it would begin to use AMD chips in 2007 and consequently Intel cut its payments to the firm. According to the SEC, Intel's exclusivity payments grew from 10 percent of Dell's operating income in 2003, peaking at a massive 76 percent in Q1 2007. 

Dell missed its earnings target that quarter and its stock plunged to the detriment of investors who had no knowledge of the exclusivity arrangement. The SEC alleged that Dell failed to disclose the reason for the drop in its results.

Dell now has three chip suppliers comprising Intel, AMD and Via and has agreed to retain an independent consultant to scrutinise its disclosure processes and controls.

In a statement, Sam Nunn, the presiding director of the Dell Board, said: "The Board believes that this settlement is in the best interest of the company, its customers and its shareholders, as it brings a five-year SEC investigation to closure. Dell's Board reaffirms its unanimous support for Michael Dell's continued leadership, and the management team in its ongoing commitment to transparent accounting, integrity in financial reporting and strong corporate governance."



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