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Dell's fraud settlement explodes PC market myths

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Too little, too late?

We now know that Dell was nowhere near as profitable as its financial statements implied, and much of the commentary since Thursday has focussed, rather myopically, on this small point. (It's a big deal if you're a Dell investor or employer - but surely not the salient point here.) The bigger picture begs to be revealed, so let's recap.

While vowing to put its customers' needs first, Dell was keeping competitive products away from its customers, in order to meet short term quarterly financial targets. It's remarkable how the needs of the Dell customer came way down the priority list. Dell executives complained that the adoption of Opteron hadn't brought cost savings. But AMD provided a "faster, smarter, more efficient and cheaper processor", as we noted at this parish. For its part, Intel had made wrong bets and become complacent - but instead of taking the hit and accelerating competitive processors to market, Intel bought its way out of trouble.

It's hard not to conclude that the PC processor market is now a monopoly cast in granite - and that the SEC settlement has come too late to introduce any meaningful competition.

AMD will no doubt dispute this. AMD was originally an official Intel licensee, the second source supplier that IBM required, until 1986. It settled all outstanding lawsuits against Intel for $1.25bn last year - about eight months' revenue of its final year as an independent company. SEC notes somewhat ruefully that five previous antitrust investigations into Intel's market funds had failed to bring results. They certainly failed to bring the funding to light in time for AMD's best crack at the market - the years from 2001 to 2006.

New York State's lawsuit suggests that the reach of the funding was wide indeed. It alleges that IBM benefited by $130m from Intel simply for not launching an AMD product. HP benefited by almost $1bn. Again, you might suppose Intel might have found better use for such resources - such as R&D.

One small detail seems to have escape a lot of people's attention - and it's that Intel now formally marshals the competition in some interesting ways. Last year Intel and Taiwanese foundry TMSC signed an interesting agreement whereby TMSC is allowed to create variants of the Atom processor which are then rebadged as Intel designs and sold into the OEM channel.

In doing so, funnily enough, the PC chip market takes a step closer to the potato chip market. PepsiCo's Frito-Lay offers the illusion of competitive market by offering up apparently independent brands of snacks. You just wouldn't know it. Frito-Lay's UK operation is better known as Walkers, and Walkers still offers Smiths crisps in certain markets. ®

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