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Posted on July 27th, 2010 by Nicole Kobie

Just how big was Dell’s cookie jar?

COOKIES

The money sloshing around some companies is rather hard to imagine. I can wrap my poverty-stricken mind around £1 million in lottery winnings easy enough, but once you get into the billions I  have no idea what that means.

So the US Security and Exchange Commission’s 61-page document detailing the exclusivity deal between Dell and Intel made for mind-blowing reading (I suggest you start at page 10, that’s when it gets good). At one point, 76% of Dell’s quarterly operating income came from Intel, via lump sum payments and a rebate system designed to keep the PC maker from offering AMD chips in its computers.

That’s a head-turning, “that can’t be right” sort of statistic. That’s $723 million in one quarter alone. One quarter. Three months. That’s more than $8 million a day, just to keep Dell “monogamous.” I’d stay loyal for that much, that’s for sure.

Over the four years this nonsense carried on, Intel paid Dell $4.2 billion, which it used to shore up its results and stashed away into so-called “cookie jar” reserves, according to the SEC. Intel has since paid out a few billion in fines, while Dell itself agreed to a settlement of $100 million, neither admitting nor denying the charges.

The differences between those numbers are rather stark, to say the least. As I’m not really a numbers gal myself, I used a handy and free tool from IBM called Many Eyes, which creates lovely visualisations. In other words, I made a picture (click to enlarge):

The really tiny blobs clinging to the underbelly of the humongous one are the settlements paid by Dell execs, while the slightly less minuscule blob is Dell’s settlement as a company. That huge one is how much Dell made from Intel.

So were these payments a good financial move by Dell? The size difference between those blobs suggest that yes, yes it was.

The two mid-sized blobs show how much Intel paid the EU as a fine and AMD as a settlement — both record-setting amounts, but still not as much as it was willing (and able) to pay Dell to stay onside, and don’t forget that it made such payments to other manufacturers too.

It may be hard to imagine that a fine worth $100 million let alone more than $2.6 billion is a slap on the wrist, but with the money flowing through both companies – Intel posted $10.8bn in revenue and $2.9 billion in profit in the last quarter alone – such charges are small change.

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8 Responses to “ Just how big was Dell’s cookie jar? ”

  1. roy Says:
    July 27th, 2010 at 8:18 pm

    What a great article and representation of the monetary bribes and regulatory fines! In Intel’s case, crime pays – even when you get caught.

    Intel is “Evil Inside”, and it looks like they are making plenty of money being nasty and bad.

     
  2. roy Says:
    July 27th, 2010 at 8:19 pm

    FOR INTEL, CRIME PAYS, EVEN WHEN THEY GET CAUGHT.

    Send Otellini to jail. That will solve the problem.

     
  3. Michael Says:
    July 29th, 2010 at 9:04 am

    At the end of the day, many consumers are making the choice to buy Dell with Intel chips inside. The chip is key to the deal and it is clearly shown in the specification. Dell have a right to chose marketing against supplier for overall profitability. I suspect that if Intel did not pay Dell in this way then the margin for Dell on the chip would be increased as an incentive. It is the consumer who really pays the fines in the end, because increased costs for the company mean increased costs of goods. Their are manufacturers in countries outside the EU and USA who can slowly gain market on this because they do not have such overheads in cost including large fines, this means increase in the market of less superior goods.
    Of course I do believe in healthy competition and just by printing this very good article it makes consumers aware and can make a more informed choice. It is also worth noting that Dell make a very good return by preloading other companies software, this profit enables Dell to be able to reduce its overall product price. The consumer is aware and usually knows that if they do not want this software they can uninstall it. From this and many other examples I feel it is time that the rules of business be even more firmly stated so it is clear but most importantly fair, a difficult balance to strike in law with clarity however.

     
  4. Paul C Says:
    July 30th, 2010 at 12:05 am

    Why did Dell not do what conventional capitalist wisdom would dictate, ie use AMD products if they are cheaper, and if Intel were not happy with that, then ask Intel to make a better offer? In other words use competition to drive down price? Would it not be in a better position now, had it done this?

     
  5. Paul C Says:
    July 30th, 2010 at 12:12 am

    If Dell really believed that Intel CPUs were better, it would not need bribing by Intel.

    I doubt that the public care about ‘Intel Inside’. What’s wrong with ‘AMD Inside’? I use to build my own computers, and I always used AMD CPUs, because they were so much cheaper. Never had a problem with them.

     
  6. Stokegabriel Says:
    July 30th, 2010 at 11:46 pm

    I just wish that Dell didn’t put the “Intel Inside” warning labels right in the middle of the palm rest on laptops.

     
  7. Intel vs AMD Says:
    August 1st, 2010 at 6:16 pm

    Looks like Intel is a bit insecure about their own CPUs, if they think companies need to be bribed in order to use them :)

    At any rate, Dell sucks and I’d never buy from them, so I don’t care too much.

     
  8. Roger Andre Says:
    August 4th, 2010 at 11:54 pm

    Just a comment regarding the 1st paragraph:

    one million seconds = 11.5 days
    one billion seconds = 34 years

    You do the math!!

     

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