While many Mac users already see PCs as “the dark side,” Dell has somehow managed to up the ante on darkness.
According to the S.E.C., the company has been dabbling in a little nastiness called disclosure accounting fraud — and they’ve just coughed up over $100 million in penalties to make it go away.
In a nutshell, Dell lied. They told the world they were meeting their quarterly goals because of their legendary strengths, when in fact it was because of their legendary weakness: an addiction to Intel’s rebate money. Dell received money for using Intel chips, as well as not using A.M.D. chips. Messy.
The S.E.C. said Dell acted “to project financial results that the company wished it had achieved but could not.” They met Wall Street’s expectations “by breaking the rules.”
Okay, so companies get themselves in legal hot water every day. But Dell managed to do something special. The S.E.C. not only fined Dell the company, they took the rare step of fining Dell the person — along with a handful of his former executives. Seems they created their own little Cosa Vostro.
Documents released by the S.E.C. show just how murky this operation was. Former chief executive Kevin Rollins boasted in 2004 that Dell can meet Wall Street expectations because of its “tightly controlled supply chain, highly efficient infrastructure and direct relationships with customers.” Somehow he confused that with “We’re getting a new shipment of cash from Intel.”
He fessed up in an email to Michael Dell, saying that Intel’s money was the only reason they’d made their numbers for three consecutive quarters. It’s “a bad way to run the railroad,” he said, adding “we are going to have to get off their drug…”
Rollins’ behavior was 100% despicable, but his assessment was 100% correct. They do have to get off this drug. All PC makers have to get off this drug — but they can’t. They became addicted ages ago, when PCs became commodities. Since they can’t make a profit on their products, they hungrily take payments from Intel, Microsoft and the software makers who bloat new PCs with dandy demos. According to The New York Times, some of the emails released by the S.E.C. showed Dell begging Intel for money to make their quarterly results.
All of this, of course, is in stark contrast to Apple — to whom Intel is an ingredient, not a paymaster.
Honestly, I don’t get why Michael Dell still runs his company. CEOs are routinely banished for failing to meet goals, and Michael hasn’t come close to restoring the company in the three years he’s been back. As CEO, he should be dumped even if he had nothing to do with the current mess — and in this case it’s obvious he had everything to do with this mess. Where are the angry villagers with their pitchforks and torches?
(Read The New York Times story here.)
There are two ways to make money in the technology business. You can obsess about making great things, and let profit flow as a result — or simply make profit your #1 priority and act accordingly.