Dell Accused of Hiding Intel Payments
A new class-action lawsuit claims that computer maker Dell Inc. inflated profits
with secret payments of about $1 billion a year from chip maker Intel Corp.
The lawsuit was filed Wednesday, the same day the company announced that founder
Michael S. Dell would return to the chief executive's role amid more disappointing
Filed in U.S. District Court in Austin, the lawsuit also claimed that Dell
concealed problems in accounting and product quality from shareholders while
company executives reaped $3.3 billion from selling their stock.
Dell spokesman Dwayne Cox declined comment Friday on the lawsuit and wouldn't
say whether the company had received payments from Intel.
A spokesman for Intel, which was also named as a defendant, said the company
had done nothing wrong and vowed to fight the lawsuit. He said that some of
the charges "appear to have been completely made up" and that Intel
payments to Dell were legal.
"It's pricing. It's discounting," said the Intel spokesman, Chuck
Mulloy. "It's a normal business practice. Our business practices are both
fair and lawful."
Mulloy declined to describe the payments to Dell, saying it was a private matter
of pricing with a customer. He said the company had not been contacted by securities
regulators or federal prosecutors.
The case was filed by the class-action firm of lawsuit firm of Lerach, Coughlin,
Stoia, Geller, Rudman & Robbins LLP on behalf of two institutional investors.
Mary Blasy, one of the lawyers who filed the lawsuit, said in an interview
that the plaintiffs don't claim that the payments were illegal. Rather, she
said, they believed Dell cheated investors by concealing the payments, which
the company didn't control and gave a false picture of Dell's financial strength.
The lawsuit charges that Dell got the Intel payments "for shipping only
Intel-based products and not doing business with AMD," Advanced Micro Devices
Inc. Dell began using chips from Intel's rival last year.
The payments to Dell were mentioned in an ongoing antitrust lawsuit that AMD
filed against Intel in 2005. The Lerach law firm learned the size of the payments
from Dell insiders, Blasy said.
The lawsuit named as defendants Dell and 16 current and former officials; Intel;
and Dell's accounting firm, PricewaterhouseCoopers LLP. It seeks class-action
status for investors who bought Dell stock from February 2003 to September 2006.
Other lawyers continue to file securities lawsuits against Round Rock-based
Dell, whose shares have lost nearly half their value in the past two years while
stock of rival PC maker Hewlett-Packard Co. doubled. Dell shares fell 31 cents,
or 1.3 percent, to $23.49 in mid-afternoon trading Friday on the Nasdaq Stock
Last week, lawyers for a Maryland investor filed a lawsuit in the same Austin
court on behalf of Dell. The derivative lawsuit charged that Michael Dell, former
CEO Kevin Rollins and other executives with unjust enrichment and gross mismanagement.
Both the recent lawsuits claim that Dell executives pushed the stock to artificially
high levels by making false statements about the company's operations dating
to early 2003. They said Dell leaders withheld knowledge about such problems
as faulty laptop computer batteries that were later recalled and a Securities
and Exchange Commission investigation of Dell.
The lawsuits come at a tumultuous time for Dell. This week, Michael Dell stepped
back into the CEO's role that he had turned over to Rollins in 2004. The same
day, Dell said it expects fourth-quarter sales and earnings to be below Wall
Dell has been losing market share to rivals and failing to meet Wall Street's
expectations for higher earnings. The company's image was also battered in August
by the voluntary recall of 4.2 million laptop batteries made by Sony Corp. and
the disclosure of an ongoing SEC probe into accounting issues.