"" 85. A 2003 internal Dell document explains the program rationale, funding methodology, and negotiated documentation, including the following highlights:
“The intent of the MCP program is to provide funding to Dell to combat the AMD threat in the marketplace since Dell is an Intel-only OEM for CPU’s”
“The MCP is negotiated on a quarterly basis.”
“There is not a formal ‘contract’ per se that documents all the terms and conditions of the MCP program for a quarter. Rather, the MCP terms and conditions are agreed upon via email and telephone communications, which are finalized in a spreadsheet that is agreed to by Dell and Intel for a particular quarter.” (Emphasis added).
86. As mentioned in the memo, throughout this period, top executives at both companies took care that the dealings between them were kept secret. Although billions of dollars in rebate payments flowed from Intel to Dell during the period 2002-2006, there was no formal documentation of the secret agreements which led to them.
3. Intel Conveyed Threats To Dell
87. Intel repeatedly made it clear to Dell that, if Dell wanted Intel’s support, Dell would have to direct its efforts against AMD. For example, in preparation for upcoming funding negotiations with Intel in 2002, a Dell executive, who regularly acted as an informal liaison between Dell and Intel, explained that Intel would not tolerate a Dell shift to AMD CPUs.
Specifically, this Dell executive wrote to Michael Dell and others: “If [Dell starts to use] AMD [CPUs], [Intel] would just give a [competitor] MOAP type dollars to match whatever we’re getting – they won’t sit around and let us transfer share to AMD…”
88. In emails and in testimony, the same Dell executive referred to this scenario – in which Intel cuts off some or all funding to Dell and shifts it to a Dell competitor – as a “double whammy.” In one instance, this executive wrote that Intel intended to use an upcoming Dell- Intel meeting to force Dell to discuss how Dell “plan[s] to drive” total market shift to Intel from AMD, and had a “perception that we’re [competing] against competitors seeking Intel CPUs, instead of marketing against AMD.”
Intel Repeatedly Renegotiates Its Payments
To Dell To Ensure “Monogamy”
89. Over the coming years, Intel and Dell fell into a pattern of negotiating the amount of Intel’s subsidies to Dell on a nearly continuous basis. These negotiations were tied to Intel’s aggressive efforts to prevent AMD from getting a toe-hold at Dell.
In each successive round of negotiations, the groundwork was usually laid by mid-level executives at both companies tasked with conveying messages and “positioning” to and from the other so that top executives at both firms would know what to expect when they met.
90. In advance of such a meeting, on June 24, 2002, Dell’s informal liaison reported back from conversations with Intel’s lead negotiator on what Dell’s then-COO Kevin Rollins, who was scheduled to meet with a top Intel executive, should expect at the meeting. Rollins was told by his subordinate that, “[w]ithout being blatant, [the Intel representative] will make it clear that Dell won’t get more MOAP if we do AMD. We’ll get less, and someone else will get ours.”
91. After the meeting, on July 9, 2002, Kevin Rollins reported to Michael Dell that the result of the meeting was that Intel was willing to increase payments to Dell and seemed
willing to do “whatever it takes” to keep Dell from purchasing from AMD.” Rollins wrote: “They got the message that we were very serious this time with our AMD assessment, and seem to want to do whatever it takes to persuade us not to go with [an AMD CPU] …. Initial word is that our MOAP should increase from the $70M this qtr to $100mm.”
. The “Boomerang” Episode
92. Dell periodically considered launching AMD-based products, notwithstanding
Intel’s fierce opposition. But its fear of Intel’s reaction, based on Intel’s explicit and implicit
threats, counseled strongly against any action. For example, in 2002, a Dell team explored a
potential switch to AMD for some of Dell’s CPU needs, in a project code-named “Boomerang”.
The study concluded, first, that “AMD offers a significant margin opportunity for [Dell’s]
Dimension and Inspiron” platforms, on account of price, cost and customer demand factors.
93. But the Boomerang study also identified Intel’s reaction as a “key question” in
the analysis and discussed the potential “opportunity cost” given Dell’s “[e]xclusive relationship
with Intel.” The study asked whether “MOAP [payments to Dell would] increase or decrease?
And over what time period – short term vs. long term?”
The Boomerang study attempted to quantify the projected margin benefit from adopting AMD, concluding that “[up] to 32% of MOAP program could be risked” before Intel’s retaliation, in the form of reduced MOAP, would outweigh the benefits of switching certain platforms to AMD CPUs.
94. The key Dell executive acting as informal liaison between the two companies
commented on the results of the “Boomerang” study.
He warned that the “worst-case downside” scenario is that Intel would “eliminate ~$250M of Dell meet-comp MOAP for some period,” and moreover, that “Intel [would] give this MOAP to competitors to ensure that Intel does not lose [market share] to a Dell AMD [system].”
The “net effect” would be that Dell would “not only lose ~$250 [million], we probably have to do incremental [discounting] on our Intel platforms against competitors who [would] now [be] subsidized with an extra $250M from Intel.”
95. A confirming contemporaneous internal Intel email from Intel’s Dell account representative to top Intel executives states that Dell must be made to understand two things: First, that Intel’s payments to Dell would decrease “if they have AMD in their arsenal.” Second, that Dell should be warned of the “possibility that [MCP] dollars that we’re (sic) applied to DELL could go somewhere else” if Dell starts to offer AMD-based products.
96. The message was apparently conveyed in fact. A Dell executive testified that, at the time of the Boomerang analysis, Intel had conveyed “the concept of their statement back that … as long as [Dell is] Intel only, our discount structure is what it is.” He added that he understood from Intel that, “[i]f there was a change in our Intel only [status], then our discount program would have to be revisited.”
97. Under these circumstances, Dell decided not to launch AMD-based products at
that time. A Dell executive who was responsible for the “analytics” and “cost assumptions” of
the Boomerang study testified to the Attorney General that concern about Intel’s reaction was a substantial part of that decision. ""
Starting on Page 33 of Source Below
http://www.oag.state.ny.us/media_center/2009/
nov/NYAG_v_Intel_COMPLAINT_FINAL.pdf
CEO Paul Otellini
More at www.DeniedPatent.com and www.Iviewit.TV on the Evils of Intel...
www.CEOPaulOtellini.com
Intel Pays Dell, AMD, Anti-Trust Violations,
CEO Paul Otellini, Kevin Rollins, Michael Dell
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