Dell's dicey fortune

Investors and the SEC are going after Dell, but it shouldn’t have to take the rap alone

I wrote a column in 2005 called "How will Dell Offset the Loss of Intel's Generosity? ". In it, I asserted that Dell needed to overhaul its strategy and focus to make up for the coming loss of Intel's ... oh, call it what you like: price supports, subsidies, loyalty bonuses, or what the business calls MDF (market development funds).

Dell detailed a services and consulting strategy for me that would be a bulwark against falling margins and the rising cost of stateside manufacturing. It made sense, but nothing came of it. Instead, at the time I wrote the column, Dell was on a binge, drinking ever deeper of a well that Intel made sure never ran dry.

Dell drank so deeply that, as investors who filed suit against Dell allege, it relied on Intel's rebates and loyalty ("don't do business with AMD") payments to keep its No. 1 ranking. Top dog was a position that not only looked great for Dell, it also gave Intel its last ammunition against AMD: Dell was proof that customers didn't care about CPU choice. How could Dell's stock climb so fast if AMD's claim -- that customers craved choice -- held any water? Keeping that question front of mind for the market was vital to Intel and Dell, and it kept AMD in its place.

I have a theory about a wrinkle that made Dell's crash so dramatic. Several times in the period following AMD's rollout of Opteron, Dell executives spoke to InfoWorld and other media outlets to hint that Dell was considering buying AMD chips. Every time Dell said that, it was front-page news, and no doubt topped the agenda at Intel the following day. It seems to me that as AMD's CPUs gained visibility and market share, Dell played Intel for an escalation of what suing investors call kickbacks. Dell probably didn't need to ask for a raise. It just dropped the A-bomb periodically and Intel said "How much this time?"

In any case, Dell's shareholders are most unhappy that in September 2006, a few short months after Dell signed with AMD, Dell's executives started dumping their stock to the tune of US$3.3 billion. Might they have foreseen that the withdrawal of Intel's kickbacks was about to blow a hole in Dell's balance sheet? That was obvious to me in 2005, and I've never seen the inside of a boardroom.

Kevin Rollins, who reigned over the AMD affair, has given up the CEO spot to Michael Dell. Maybe Rollins is being set up as sacrificial lamb. Mr. Dell may be displeased that Mr. Rollins' brilliant strategy in the face of SEC and New York Attorney General investigations was to let the filing of two quarters' worth of earnings reports slip his mind.

This doesn't call for financial prestidigitation or a deal for a $10 million fine and time served. It calls for the truth, and the laying of responsibility where it belongs. Intel's "business as usual" is not business as it should be. Dell isn't blameless, but it got stuck in a web spun by Intel. The best way for Dell to make amends is to lay out, for all of us, just how "business as usual" is done. This time, it should remember not to leave anything out.

One final note: In last week's column I referred to AMD's Torrenza as CPU technology. Torrenza is a specification for linking third-party coprocessors and other programmable logic directly to AMD CPUs through their HyperTransport busses. I just can't keep code names straight. Sorry about that.

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