Dell Seeks SEC Settlement Over Intel Claims

PC maker Dell is in talks with the SEC to settle allegations of financial misconduct concerning questionable accounting practices over payments and rebates it received from Intel over the past decade.

The discussions involve both an investigation by the SEC that began in 2005 regarding accounting practices related to its business relationship with Intel and a newer investigation about the two companies’ dealings that apparently more directly involves CEO Michel Dell.

Sets Aside Millions

Dell executives have put aside $100 million (£68 million) to cover a settlement with the SEC stemming from the earlier allegations that led the company to restate its financial results from 2003 into early 2007, the company said in a 10 June statement.

Dell is revising its fiscal 2011 first quarter numbers to reflect the possible settlement.

The settlement would cover alleged violations of federal securities laws, including antifraud provision, according to Dell.

The allegations involving Michael Dell relate to “disclosures and alleged omissions” before the company’s fiscal year 2008 involving Dell’s business relationship with Intel. The company did not elaborate, but the New York Times reported that a source briefed on the case said the investigation related to how Dell accounted for payments and rebates that it had received from the giant chip maker.

Dell said that any settlement with the SEC would not include an admission or denial of the SEC’s allegations, and would not bar Michael Dell from running the company.

Sam Nunn, a former US senator and the presiding director of Dell’s board, said he expects the investigation to be settled soon.

“We are hopeful that these settlement discussions will achieve a comprehensive resolution in the near future,” Nunn said in a statement. “The independent directors of the Board have affirmed that Michael Dell will continue to lead the company as its Chairman and CEO, and he continues to have our complete confidence and support.”

Charles King, an analyst with Pund-IT Research, said the settlement with the SEC makes sense for Dell.

Intel Scrutiny

“From a monetary standpoint, it shouldn’t hurt the company very badly,” King said in an interview. “Certainly $100 million is nothing to sneeze at, but in terms of recent SEC settlements, it’s larger than some, but not as big as others.”

It also allows Dell to get out from under the allegations and move on with its business, particularly given Intel’s stated intentions to fight lawsuits it is facing, a battle that could take a long time.

“I expect the folks at Dell just said that it was time to pay the piper and whatever Intel wants to do is fine,” King said.

Intel has come under considerable scrutiny over the past year for its business practices relating to OEMs, and Dell in particular.

Legal Tussles

The chip maker is being sued by the Federal Trade Commission and the N.Y. State Attorney General’s Office for alleged anticompetitive practices. The agencies claim that for more than a decade, Intel used its dominant position in the x86 chip market to coerce OEMs to limit their use of products from rival Advanced Micro Devices. The FTC said Intel officials later did the same to hold down sales of Nvidia’s graphics technologies.

According to the lawsuits, Intel used a combination of payments, rebates and threats to convince such systems makers as IBM, Dell and Hewlett-Packard to limit their use of AMD processors in their systems. Dell was the biggest beneficiary, according to the New York AG’s Office, receiving more than $6 billion (£4 billion) from Intel between 2002 and 2007.

Dell was the last of the major OEMs to incorporate AMD processors in its PCs and servers.

The FTC also accused Intel of altering its own technologies to hinder the performance of competing products.

Those lawsuits came months after the European Commission, the antitrust arm of the European Union, levied a $1.45 billion (£988 million) fine against Intel for similar practices there. Intel appealed the fine.

Intel officials have strongly denied the allegations and have promised to fight the lawsuits, which came even after Intel and AMD reached a $1.25 billion (£851 million) settlement in their long-running lawsuit.