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Microsoft Kickbacks and Pressures on Dell: Lessons From Intel

Posted in Dell, GNU/Linux, Hardware, Microsoft, Windows at 1:10 pm by Dr. Roy Schestowitz

“We should whack them [Dell over GNU/Linux dealings], we should make sure they understand our value.”

Paul Flessner, Microsoft

Summary: The commonalities between GNU/Linux and AMD are explained in the context of Dell

DELL received a lot of flak and public backlash recently, mostly because of its fair/unfair description of Ubuntu GNU/Linux, especially when it comes to security. Pressure from Microsoft was a possibility [1, 2] and Dell became the focus of attention for reasons it did not crave. More recently, Dell was again accused of a “Confusing Take” (regarding Windows vs. Ubuntu) over at Tom’s Hardware and yesterday a storm started/volcano erupted in Slashdot, which linked to this British article. The headline says “Dell drops Ubuntu PCs from [UK] website… for now” and Glyn Moody wrote: “you mean *again*? can’t they make their mind up?”

We only alluded to this news yesterday when we wrote about Intel's crimes with Dell. We did not mention this immediately because we waited for more clarifications and commentary. Here is how GreyGeek put it (he gave us permission to quote in full):

DELL stops listing Ubuntu computers in the UK


Dell has stopped selling consumer PCs preloaded with Ubuntu from its website, and doesn’t know when they’re coming back.

A search for Ubuntu on the Dell UK website returns only one laptop – the Dell Latitude 2100 from the company’s business range.

The Dell spokesperson also suggested Ubuntu is failing to win over the public. “The reason why they’re not on our main pages is because Ubuntu systems are primarily targeted towards advanced users and enthusiasts, and the vast majority of consumers purchase PCs with Microsoft Windows pre-installed,” the Dell spokesperson claimed.

One reason why consumers might not be snapping up Linux-based systems is that Dell’s own advice page warns anyone other than open-source developers to stick with Windows.

In checking perhaps I’ve found a web page that Dell missed?
Clicking on the “Customize” button I find that the Ubuntu 9.04 offering is surrounded with a graphic PUSHING Windows 7.   It doesn’t matter.  The other DELL Ubuntu offerings are:
Mini 10n
Inspiron 15n  (no webcam!)
Vostro V13 (no webcam!)
Latitude 2100 (no webcam!)

What a measly selection.    With “friends” like DELL Linux needs no enemies.

DELL’s entire Linux effort for the last three years has been, IMO, one big gigantic FRAUD, with the intent to offer Ubuntu pre-installed on a few marginal boxes without significant customization available and for only one reason: so that Microsoft can avoid charges that it holds an illegal monopoly on the PC OEM desktop.  Which it does.

The only question remaining is: “What are the advantages to DELL for allowing itself to be controlled as if it were a wholly owned subsidiary of Microsoft?

Well, we have one answer to that question already.  Just yesterday (7/23) we learned that DELL corporate has agreed to pay a $100 Million fine, and Dell personally has agreed to pay $4 Million.  Two of his lieutenants have agreed to pay $4M and $3M each.   And what did the SEC fine them for?  

They failed to disclose material information to investors and used fraudulent accounting to make it falsely appear that the company was consistently meeting Wall Street earnings targets.

If THAT is a crime then Microsoft is guilty as well. That’s how they got to the top of the pile they are setting on today.    What DELL actually did was take payoffs from Intel to not use AMD chips.

The SEC charged that Dell did not disclose to investors large “exclusivity payments” the company received from Intel Corporation to not use central processing units (CPUs) manufactured by Intel’s main rival, Advanced Micro Devices Inc. (AMD).

“It was these payments rather than the company’s management and operations that allowed Dell to meet its earnings targets,” the SEC said.  “After Intel cut these payments, Dell again misled investors by not disclosing the true reason behind the company’s decreased profitability.”

The SEC’s complaint charged that the exclusivity payments made by Intel to Dell for not using CPUs made by AMD grew from 10 percent of Dell’s operating income in fiscal year 2003 to 38 percent in fiscal year 2006.  It peaked at 76 percent in the first quarter of FY 2007.

In fiscal year 2007, after Dell announced its intention to begin using CPUs made by AMD, the company and the individuals charged failed to disclose the basis for the company’s sharp drop in its operating results.  “In dollar terms, the reduction in Intel exclusivity payments was equivalent to 75 percent of the decline in Dell’s operating income” the SEC said, and Messrs. Dell, Rollins, and Schneider told investors in an earnings call “that the sharp drop in the company’s operating results was attributable to Dell pricing too aggressively in the face of slowing demand and to component costs declining less than expected.”

Intel is the subject of antitrust lawsuits brought by the Federal Trade Commission and several states.  In November 2009, Intel agreed to pay AMD $1.25 billion as part of a settlement in a private antitrust suit brought by AMD.

This reveals the injustice in prosecuting corporate white collar crime: that Dell and the other people involved at both companies did not face CRIMINAL prosecution and didn’t even have to admit guilt, even though there was enough evidence to force them to pay hundreds of millions in fines, which amounted to about 10% of their annual net profit.  Perhaps if Dell and the Intel management and major share holders had to spend some hard time in jail they wouldn’t be so willing to flaunt the law for obscene profits.  It’s like a hand-slap and defacto approval of their behavior.

DELL’s behavior with Intel suggests that DELL is staying afloat, despite the poor quality of their machines and their high return rates, because Microsoft is paying them to NOT include Ubuntu on their desktops in a significant way, including not giving Ubuntu front page representation.  It also raises questions about the other PC OEMs who won’t free up their desktop for competition against Microsoft.

How Microsoft got to the top of their pile of cash is shown specifically here:

Financial Pyramid Building Techniques Being Used by Microsoft:

Stock option programs are an excellent benefit and many companies use them responsibly. At Microsoft, however, stock option accounting is only one of its many pyramid building techniques, what could be called a cash generating component. Additional pyramid building techniques include the following.  It is important to note that the genius of the pyramid scheme is to leverage share growth from investors using a passive investment approach based upon indexing to the S&P 500.  Most smaller and mid size technology firms are not in the S&P 500 and therefore are locked out of this key aspect of the pyramid from the beginning.

1) Earnings Management: The first and most important tool Microsoft uses is the manipulation of earnings to ensure analysts’ expectations are met.  According to an ABC News 1/22/99 article by Michael Martinez, Microsoft’s own internal auditor, a respected 30 year veteran and former partner of Deloitte and Touche, was fired in 1996 after informing management that their earnings manipulations were illegal and violations of the SEC and FASB laws.  He was given the option to resign or be fired and later settled for $4 million after suing under the Federal Whistle Blowers Act.
2) Speculating on Their Own Stock:
3) Convincing Employees to Take Less Real Wages:
4) Publicly touting the stock
5) Controlling the media.
6)  Stock Option Accounting: (You really have to read this one.  It explains how Microsoft used YOUR tax money to pay for developing Win95!
7) Purchasing future sales via equity investments:
8 ) Managing the financial analyst community.
9)  Trying to Discredit Those Seeking to Expose the Scheme:
10)  Money Laundering:
11)  Corruption of Higher Education:
12)  Manipulating Investors Who Use a Passive Approach Relying on Indexes Such as the S&P 500.

Several Impacts from Microsoft’s Financial Pyramid Scheme Include the Following:

This scheme led by Microsoft is having many unexpected impacts, a few of which are noted here.  The upcoming book will  detail additional impacts and also explain how this situation affects a variety of people in different occupations.

1)  Government Will Be Defunded.
2)  The Retirement System Is Being Plundered.
3)  Business Owners Are Exposing Their Personal Assets By Not Paying Enough Attention To Their 401K
4)  The Dollar Is Being Devalued In Relation to the Yen.
5)  False Inflation is Emerging.
6)  The Integrity Of The Markets Is Being Destroyed
7)  The Fraud Is Accelerating
8 )  Microsoft auditor, Deloitte and Touche, issued a “clean” audit opinion. (The auditor for  Deloitte and Touche who originally did the work reported several of the problems mentioned above and was fired and his character impuned publically.  He sued and won almost $5M in damages.
10) Significant one day stock value declines at major corporations that pay more in cash wages than stock options are accelerating.
11)  Microsoft organized a lobbying effort to defund the Department of Justice, using supposedly non-partisan groups like the Citizens for a Sound Economy.
12)  Conversions to cash balance pension plans are increasing.  

>The State Gov agency where I worked switched to “Cash Balance” a couple years before I retired.  I had the option to not switch.  

This is another pyramid impact. What IBM employees still don’t seem to realize is that their lost pension benefits are resulting from fraud at Microsoft.  Microsoft is pilfering these cash balance plans into its pyramid scheme by overstating its earnings, thereby drawing a larger percent of the index based investment on the S&P 500 and correspondingly making it more difficult for companies like IBM to compete.  This forces these companies to cut back on real benefits in an effort to keep its earnings and stock price up.  This was also clearly identified in the original study.

These are some interesting thoughts on Dell, GNU/Linux, Intel, and Microsoft. Connected to this news (via Slashdot) we have reports from The Economist and from the Financial Times.

Intel seems close to putting behind it a decade of market abuse complaints from round the world in a settlement with the US Federal Trade Commission this week.

The deal will include concessions on the US chipmaker’s business practices, according to a person familiar with the settlement, but will not include fines because the FTC does not have the authority to issue civil penalties.


It also alleged Intel secretly redesigned key software to stunt the performance of rivals’ chips that were licensing its “x86” microprocessor design.

But, in addition, the FTC alleged that Intel was repeating in GPUs its tactic of slowing down competitors, such as graphics chipmaker Nvidia, so that it could catch up.

As we summarised this yesterday, Microsoft, Intel, and Dell are exceptionally corrupt and it pays off for them.

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  1. williami said,

    July 25, 2010 at 5:17 pm


    This is why I build my own Linux PCs… I have full control over what I want and don’t want on my computers, and I don’t have to pay the M$ tax.

  2. twitter said,

    July 25, 2010 at 11:16 pm


    It’s incredible how much it costs to maintain the Wintel monopoly, and the whole thing is indeed a massive fraud. According to The Economist, Dell would have missed their earnings projections every year between 2002 and 2006 if it had not been for Intel’s anti-competitive exclusivity payments. This means that XP was an economic failure for Dell. I’ve known for years that resistance to new Microsoft operating systems was tremendous but even I’m shocked to learn what a huge failure XP really was. Vista and Windows 7 are even larger failures, as we can see by the nearly 80% portion of Dell’s revenues Intel’s kickbacks made. If the biggest, most favored vendors can’t make money off Microsoft who can? The entire Windows industry has been a fraud for at least a decade. It is incredible that so many pension funds were conned into purchasing Microsoft shares. That money won’t come back as Microsoft’s collapse becomes more obvious each day.

    Dr. Roy Schestowitz Reply:

    What’s shocking here is that Intel and Dell got only a slap on the wrist and they can carry on. It shows that crime pays off.

    Amicus_Curious Reply:

    Dell’s deal with Intel consists essentially of a price discount on Intel parts based on an exclusivity agreement. You can frame this as some dark malevolence, but in reality it is just a discount for a favored customer. Microsoft did essentially the same thing with its OEMs. The practice was deemed legal by the courts in the first USA vs Microsoft trial at the district level since it did not block competitors from more than 40% of the available market. In the settlement, Microsoft agreed to an open price list, which blocked this practice, although they were allowed to compensate partners for co-marketing costs such as where Dell might advertise “Designed for Windows 7″ or “Dell reccommends Windows 7″.

    Dell is in trouble with the SEC because they did not accurately describe this arrangement, claiming their cost efficiency was due to superior management overall rather than to a simple agreement.

    Other than a similarity of pricing, though, the Intel arrangment speaks nothing of XP, Vista, or Windows 7.

  3. gnufreex said,

    July 26, 2010 at 11:56 am


    What is even more frightening, we are looking at MicroARM trouble ahead. http://www.informationweek.com/news/hardware/processors/showArticle.jhtml?articleID=226200195&subSection=All+Stories

    I can’t get why Microsoft need ARM license… other than to make incompatible ARM designs which use some of ARM patents and which would be disabled to run GNU/Linux. Then they could license those to everyone, and only support those with their Windoze shun those which run GNU/Linux. With little kickbacks and distorting reality, every MFR (manufacturer, or madafucker) will start claiming that there is no market for “old” ARMs that run non-Microsoft OSs.

    Crime pays off.

    Agent_Smith Reply:

    I don’t think ARM will fall in these M$ tactics. ARM’s market is huge, because it’s non x86, it’s fast, low power consumption . M$, despite a big share in the desktops, with the Wintel architecture, it’s not a big contender in ARM’s arena. It’s not even a contender. If ARM keeps doing what it has ever been doing, they’ll keep doing fine. If they fall for M$’s schmoozing, they’ll lose market. And, ARM is English. I don’t think brits want to loose their dominance on the RISC market.

    Dr. Roy Schestowitz Reply:

    Don’t forget that Windows programs are only compiled for x86 (except very few). It’s the programs that help Microsoft’s inertia.

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