Funny Money is an Old Tech Joke

Article By : Rick Merritt, SiliconValley Bureau Chief

Strange transactions among some tech giants are getting a little less scrutiny than I would like.

Back in the heyday of the PC, I got an education in market development agreements. These seemingly innocuous contracts sometimes were actually quite insidious.

In a phone interview with a senior PC product manager from an OEM back in the 1990s I got an earful about Microsoft. It would pay hefty rebates to OEMs who shipped a certain percentage of their systems with Microsoft products such as Windows and Internet Explorer and engaged in a variety of other co-marketing activities.

The software giant sometimes held back the payments until just before the OEM’s quarterly earnings report. The rebates were sizable enough to make the difference between a profit or a loss for the quarter, said the product manager in one of several PC companies that lived on razor thin margins back in those days.

So, I had an attack of déjà vu when I read back in January Qualcomm had until recently been paying Apple rebates calculated in ten figures.

It’s not clear whether Qualcomm was engaging in the same funny money games with Snapdragon SoCs that Microsoft used to play with Windows. Very little is clear from the set of related agreements by which Apple and Qualcomm conducted business — and that may have been part of the objective.

What is clear to me is some authority ought to shine a big spotlight into this area. Unfortunately, it seems the European Union is backing off on its self-deputized role of acting as the cop to the tech industry, at least in one case.

On September 6, the EU Court of Justice said a lower court should re-examine “the arguments put forward by Intel concerning the capacity of the rebates at issue to restrict competition,” the court was quoted as saying in a Reuters report.

At issue were rebates paid Dell, HP, NEC and the former IBM for using higher percentages of its x86 processors. It was one aspect of a 2009 antitrust case in which the EU fined Intel $1.3 billion for anti-competitive practices it said hurt AMD and its own European OEMs. In a blog post, Intel applauded the latest decision in its ongoing appeal.

The EU has been holding tech companies’ feet to the fire for some time. The rationale of the latest move is unclear, but hopefully won’t represent a trend.

This is a great industry, but sometimes some people working for its biggest players in the fever of go-go times need to know someone with a serious attitude is watching out for funny money. And that’s no joke.

— Rick Merritt, Silicon Valley Bureau Chief, EE Times Circle me on Google+

Leave a comment