Dell and its Intel Habit

This is lovely.

On Thursday, the Securities and Exchange Commission released some communications between Dell and Intel executives that shed more light on this matter. It shows Dell executives telling investors one thing and telling each other the exact opposite.

According to the S.E.C., Kevin Rollins, Dell’s chief executive for part of the period in question, bragged in 2004 that Dell’s ability to meet or exceed Wall Street expectations for 12 quarters in a row was “driven by our tightly controlled supply chain, highly efficient infrastructure and direct relationships with customers.”

And yet, at around the same time, Mr. Rollins wrote to Michael S. Dell, the company’s founder, that “for 3 qtrs now, Intel money has made the qtr. A bad way to run the railroad,” according to the S.E.C.

Later, Mr. Rollins wrote to Mr. Dell about Intel, saying “We are going to have to get off their drug . . . “. There was much more.

The information disgorgement came as the S.E.C. hit Dell with accounting fraud charges, and the company settled the matter with a $100 million fine and no admission of any wrongdoing.

At the heart of the S.E.C.’s complaint against Dell was the claim that Dell hid its reliance on rebates from Intel from investors. Intel rewarded Dell for not using A.M.D. chips, and Dell became more and more dependent on payments from Intel to meet quarterly financial targets, according to the S.E.C.

Dell’s management highlighted how the company was tweaking its supply chain or dealing with changes in component costs when it explained swings in quarterly results to investors. These executives, including Mr. Dell, failed to stress that Dell’s quarters were being made or broken by rebates from Intel that fluctuated depending on Dell’s financial needs and loyalty, according to the complaint.

Other e-mail messages talk about Dell needing to beg Intel for money to meet quarterly goals and show Mr. Rollins being less than direct when asked about effect Intel’s rebates had on Dell’s quarterly performance.

Interesting also how this addiction was entirely unnoticed by Tom Friedman, one chapter of whose The World is Flat: The Globalized World in the Twenty-first Century was devoted to a gripping paen of praise for Dell’s lean, mean and tightly-integrated supply chain.