By Scott M. Fulton, III, Betanews
If the European Commission's antitrust case against Intel seemed completely clear and convincing up to now, this morning's publication of its formal provisional explanation of its charges (PDF available here) -- actually delivered last May 13 but only made public today -- muddies the waters somewhat. For while there is indeed some smoke, and certain excerpts would imply the existence of a gun from which the smoke emanated, the presence of far more smoke from various other sources not only un-resolves some questions, but adds some new ones to the mix.
Most surprising of all is the EC's explanation of rebates Intel allegedly provided to Dell Computer in exchange for limited exclusivity, the existence of which has actually not been denied. A thorough read of the evidence explained by the Commission reveals that the rebate program was apparently conceived by Dell, not Intel. And although e-mails between redacted Dell executives did warn of possible retributions by Intel had their deal not been kept as promised, those same e-mails indicate Dell had other reasons of their own to pursue exclusivity.
Though Dell had originally sold PCs with Intel CPUs exclusively since its founding, it started considering adopting some AMD chips as far back as 2002, according to Dell evidence cited by the EC. During this time, Intel typically sold CPUs to its OEM customers for a category of prices it called "Customer Authorized Price" -- essentially a way of dressing up its typical prices to look as though customers deserved and earned them. Still, big customers negotiated discounts; and at the time, Dell was the biggest one. Intel admitted that its biggest customers tended to negotiate "discounts" (why wouldn't they?); though some internal documents apparently referred to the earliest proposed forms of these discounts as "rebates."
When Dell and Intel did settle on a name for these discounts, they were called the Dell Meet Competition Program ("meet-comp," or MCP). Essentially, it enabled Dell to execute certain flexible pricing terms that it could specify, provided that it met certain sales goals. Although the goals themselves were redacted from the EC's published document, it appears Dell was the one specifying what the goals were, at least in initial negotiations.
"Intel specifies that the [name of program redacted] MCP program was designed 'to enable Dell to respond to unexpected marketplace conditions with enhanced flexibility,'" cites the EC's provisional statement, quoting evidence provided by Intel. A separate citation from Dell's evidence is described thus: "Dell negotiated with Intel that a small portion of the MCP discount could vary based on Dell's success in meeting specific criteria negotiated on a quarterly basis."
Here, Dell referred to the benefits it received from Intel as "discounts;" but from time to time in its own citations, it referred to them interchangeably as "rebates."
As Dell began seriously examining including AMD processors in its product mixes, beginning with an evaluation of its server processors in December 2002, its accountants considered the potential future impact of introducing AMD into its product line. According to Dell evidence cited by the EC, it was during a private Dell executives' presentation that month that the effects of a hypothetical Intel retaliation were first considered. Executives whose names were redacted from the public EC document considered Dell data suggesting that Intel could retaliate against a Dell pick-up of AMD-based equipment by providing competitive discounts, or rebates, to competitors (their names were also redacted). Those discounts could be executed by Intel in the interest of maintaining the balance of its market share.
The following February, another internal Dell presentation made the point, according to Dell evidence, that "Retaliatory [redacted] could be severe and prolonged with impact to all LOBs [Lines of Business]." And the next month, another: "Anticipated Intel response wipes out all potential [redacted] upside from going with AMD."
These collective presentations apparently drove home their point to a Dell senior executive, whose name here was also removed. In an analysis memo directed toward other senior executives, this person stated, "Bottom line is that I don't see how we make AMD a positive for Dell. The end game is inevitable, the cost to support AMD is high, […], and the net loss of MCP will far outweigh any gain we get by doing a limited toe-dip with a couple of server platforms."
Most noteworthy about this citation is the phrase "the cost to support AMD is high," which seems to come out of the blue. If Dell also estimated the cost to upgrade and improve its customer support services for the addition of AMD-based processors to the line (a reasonable assumption), the EC did not provide any evidence of it.
Next: Can Intel be held responsible for Dell's assumptions?
Similar conclusions about Intel's possible retaliation were drawn by Dell for over three years, according to a plurality of e-mails cited by the EC. But a statement from Dell to the European Commission on precisely this subject actually begins with the following two words: "Dell assumed."
"Dell assumed that shifting some purchases to AMD would result in a reduction of MCP. But Dell did not know precisely how much MCP would decline, in what manner and over what time period. Dell understood that Intel would not welcome such a decision, as it would be viewed as a significant shift in the historical relationship between the companies," Dell told the EC. "As indicated in the documents, the Dell team sought to forecast this negative impact across a range of potential scenarios, including some which predicted a substantial reduction in MCP, and did not rule out the possibility that such reduction might be disproportionate to the reduction in the volume of Dell's purchases from Intel."
At some point in time, Intel did pick up on Dell's conclusions, and started leveraging its own assessed fears of its retaliations to its own advantage, according to Intel internal e-mails cited by the EC. For one dinner meeting (presumably at or near Dell's Round Rock, Texas headquarters), an Intel representative was advised thus: "Somehow, with finesse, we need [Dell Senior Executive] to understand that if Dell adds AMD to their product line they no longer have a meet-comp exposure -- We have a meet comp exposure so we must prioritize opportunities on a case by case situation."
But that meeting took place in January 2003. What the EC characterizes as Dell's response to that meeting actually came (if you read the dates) over three years later, in February 2006, when as the EC describes it, Dell made statements to the press indicating that it would continue its exclusivity arrangement with Intel. The EC cited Intel's response to those press reports as though it had hit the jackpot, with one Intel exec writing to another that Dell's news constituted "the best friend money can buy."
However, I was one of the reporters at the time to whom Dell was talking about Intel exclusivity, and that's not what I was told. In fact, Dell announced its Opteron partnership with AMD in May 2005, in an event for which I was briefed by both Dell and AMD. Also, I was being prepared for a conference including several tech reporters, including myself, with Chairman Michael Dell personally. There he told me and my counterparts exactly the opposite news: that Dell was actively considering AMD for consumer PCs, in addition to the server PC deal announced the previous month.
In fact, the stories that had been published elsewhere (which the Intel executives apparently believed), were wrong, as my then-colleague Wolfgang Gruener and I accurately reported for TG Daily. However, the EC's evidence specifically points to the Intel executives' response to the incorrect news report from elsewhere, saying, "This demonstrates the direct link between Dell's policy of Intel exclusivity and Intel payments."
The EC does cite Intel's objection that its case as presented "does not legitimately support an inference of an exclusivity agreement between Intel and Dell." The alleged lack of evidence was responded to by the EC in a press release this morning, which alleged that such a gap constituted "concealment." That press release construed the alleged concealment as helping Intel to "conceal the conditions in its arrangements with PC manufacturers and Media Saturn Holdings," the German retailer that sold Intel PCs and parts exclusively for several years. However, the actual EC provisional statement makes no such allegation tying Dell to MSH -- these are actually two separate affairs. The provisional statement does take Intel and Dell both to task for failing to keep minutes of their meetings during which their MCP rates were negotiated. "Dell also makes clear that there is no complete written agreement outlining the terms of the MCP," the statement reads.
Intel has alleged that the European Commission may be either withholding, or actively refusing to seek, evidence that may be exculpatory towards Intel. This includes documents uncovered in its ongoing civil trial in Delaware, plus evidence that should have been uncovered during a meeting between EC representatives and apparently the same Dell senior executives whose names were redacted from their memos.
But in its defense, the Commission argues that it doesn't have to take notes: "Intel's arguments are misconceived. In the first instance, there is no general obligation for the Commission to take minutes of meetings," it writes. It goes on to cite European case law: "There is…no general duty on the part of the Commission to draw up minutes of discussions in meetings or telephone conversations with the complainants which take place in the course of the application of the Treaty [of the European Community]'s competition rules."
The EC's statement on its decision also went into detail regarding Intel's alleged dealings with the aforementioned Media Saturn franchise, and with Hewlett-Packard.
Copyright Betanews, Inc. 2009