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The Real Reason Behind Dell's Fall?

September 23, 2009 – Comments (0) | RELATED TICKERS: DELL , INTC , HP

The EU's publication of evidences in Intel's antitrust lawsuit on Monday (9/23) might have revealed the reason behind the misfortune of not just AMD but also Dell (DELL).  Dell's revenue started deteriorating at the end of 2005 and Dell's share price has dropped 60% since then.  Many reasons are cited for Dell's stumble such as quality and customer service but the details from the EU can provide clues to the real reason.  The European Union published e-mail exerpts from computer makers on Monday to support the claim that Intel used strong-arm sales tactics to "squeeze out" AMD. 

The interesting parts are emails from DELL and HP during 2002-2005.  

Dell also complained to Intel in a 2004 e-mail that sticking to Intel chips "results in Dell being uncompetitive ... we have slower, hotter products that cost more across the board in the enterprise with no hope of closing the performance gap for 1-2 years."

Dell's complaint to Intel could have been interpreted as Dell's intent to ditch Intel chips.  In return, Intel taught Dell a lesson by (heavily?) subsidizing a more loyal customer and Dell's competitor, HP.

During that period (2002 to 2005), Hewlett Packard Co.'s rebates were linked to it buying at least 95 percent of its business desktop chips from Intel, according to the EU.  The following is an HP email from 2004,

"You can NOT use the commercial AMD line in any country ... If you do and we get caught (and we will) the Intel moneys (each month) is gone (they would terminate the deal). The risk is too high."

Those acts happened right around the time Dell's revenue started to slide and HP gained prominence.  HP finally toppled Dell in 2006.  Dell probably learned its lesson that licking Intel's boot is more profitable than selling AMD chips.  Last year, Dell decided to drop AMD's chips from its online store.

More EU news at http://tech.yahoo.com/news/ap/20090921/ap_on_hi_te/eu_eu_intel