The EC's charges: Did Intel really threaten Dell if it shifted toward AMD?

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?