Does Intel Offer Payola to Retailers?

We know the PC business is gritty and tough, and news today that Intel is shedding 1,000 of its managers provided further confirmation, but a report emerged today featuring the sordid allegation that Intel has paid German retailers to keep AMD-based PCs off store shelves.

AMD evidently plans to file a complaint with the German competition authority regarding alleged Intel Corp. anticompetitive behavior originally reported by the Financial Times Deutschland. Specifically, AMD alleges that Intel pays German retail chain Media Markt not to stock PCs containing AMD processors. Last year, AMD made similar allegations in an anticompetitive-behavior lawsuit filed in the USA, charging that Media Markt was among a group of European retailers that accepted payment from Intel in exchange for selling just a small percentage of PCs containing AMD processor or no AMD-based PCs at all.

Intel says its business practices are lawful.

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Credit Suisse Questions Logic Behind Alcatel-Lucent Merger

I am not the only one who believes Alcatel took a horribly wrong turn when it chose to merge with Lucent.

In a new report, Credit Suisse analysts say the pending merger is “less than compelling.” The analysts say rating cuts for the two companies could be “imminent,” since risks associated with merger execution and finances are not factored into the companies’ current stock prices.

Say the analysts: “In sum, we believe that the pending Alcatel-Lucent merger is more a defensive play than one driven by strategic logic.”

In my view, that’s an excessively generous assessment. What kind of a defensive play weakens both companies and alienates customers? Let’s be candid and call this merger a disaster in the making, driven by fear or hubris . . . or perhaps by both.

Intel Cuts 1,000 Managers; More Layoffs Expected

Facing market-share losses to AMD and a tepid PC market, microprocessor king Intel Corp. announced today that it would layoff 1,000 of its managers in a bid for greater efficiency and reduced costs.

Said an Intel spokesman: “Our analysis shows that we have too many management layers from the top of the company to the first line of supervisors to be effective.”

That’s probably true, and paring superfluous layers of management should improve the company’s effectiveness and responsiveness. But 9,000 more job cuts at Intel are said to be on the way, and it’s hard to say at this point whether all those affected will be allegedly expendable managers or a wider swatch of employees from Intel’s various business units. We might see Intel exit entire markets, as it did a couple weeks ago when it sold its communications and application-processor business, which made chips for cell phones and handheld devices, to Marvell Technology Group for $600 million and the assumption of liabilities. Intel executives continue to hunt for areas of the company that could be made leaner and meaner.

All this turmoil at Intel tells us a few things. First, Intel is admitting that it was operationally inefficient and must run at tighter ship. Second, it is implicitly conceding that it has dropped the ball against AMD, including in the server segment, where AMD’s Opteron has gained significant ground. Finally, the PC market seems to be performing worse than it does traditionally at this time of year, and there are indications that it won’t pick up appreciably until Microsoft’s Vista operating system finally reaches market.

All in all, it’s easy to understand why Intel, realizing that top-line growth will be difficult, is slashing costs to boost its bottom line.

Dell to Slash Rebates

Dell has wrung maximum efficiency from its supply chain and manufacturing operations, but as its competitors, especially Hewlett-Packard, catch up in those areas, Dell is trying to reduce costs elsewhere.

It can’t cut back on sales, support, and help-desk personnel. The company’s customer-service reputation has suffered in the past year as tales of customer purgatory — having, for example, to wait on indefinite hold on a customer-service hotline or not getting a return call regarding an urgent technical problem — have proliferated and been publicized online.

One area that Dell has identified for cost savings and enhanced efficiency is mail-in rebates and price promotions. The company says it is sharply cutting back on rebates and promotions for the sake of its customers. It is also doing it because it’s good for Dell, but that wasn’t mentioned explicitly. In total, the cull should result in a 70% cut in promotions for individual product lines, and an 80% reduction in price promotions for individual products.

A simpler pricing structure, which Dell says will not result in higher prices for consumers, will help Dell reduce costs and squeeze a bit more margin from sales of PCs to consumers and small business.

ABC Asks: What’s Wrong with Microsoft?

In a feature article on its website, ABC News wonders whether Microsoft has seen its best days come and go.

It’s a fair question, one that has been asked by countless people in and around the information-technology business. The fact is, Microsoft has been at the top of the software heap for decades, and it has dominated the computing ecosystem like no other company. Given its achievements, it was inevitable that it would suffer a decline, at least in relative terms. What has surprised people, I think, is not so much that inescapable decline, but how it is manifesting itself.

Although Microsoft has been late with releases of its flagship Windows operating system in past years, the repeated delays in the release schedule for Vista set a new precedent for product-release belatedness. Similarly, Microsoft belatedly recognized its security obligations to its own operating system and applications, though it has attempted to compensate for that omission by shifting into a surprisingly aggressive gear, filling holes that could not be addressed organically by resorting to targeted acquisitions of small companies with compelling technologies. Microsoft also was late to the Web 2.0 game, letting Google and others take a commanding lead with AJAX-based software as online services. The consumer portal battle hasn’t gone according to plan, either, with MSN lagging behind in the overall market. Of course, to top it all off, there have been the antitrust battles and, more recently, a growing wave of executive defections and business-unit reorganizations.

Microsoft has enjoyed its successes, too. The XBox has done extremely well in a console-gaming market that was ripe for a new competitor to challenge Sony’s complacency and dominance. Despite the delays in release schedules, it still owns prodigious packaged-software franchises in operating systems and personal-productivity suites, though there are disquieting signs on the horizon suggesting that even those formerly impregnable fortresses can be stormed by web-based invaders.

But Microsoft still has time to get it right, and people have been burned betting against the company in the past. Even if Microsoft does lose some of its power and influence, it still will be a formidable competitor in many markets.

Maybe the problem for Microsoft is, surprisingly, one of focus. A company that knew its mandate for so long now seems confused about what it should be doing and where it belongs in the decades ahead. Perhaps Microsoft will have to revisit its overall strategy, think carefully about its priorities, and then focus only on those areas that are essential to success. Microsoft certainly has the feel of a company fighting too many battles on too many fronts, diluting its effectiveness by spreading its resources across a growing universe of network computing.

BusinessWeek Sheds Light on Secure Computing’s Acquisition of CipherTrust

In an article published online today at BusinessWeek, we learn how Secure Computing’s CEO John McNulty came to the decision to surrender a substantial amount of his company’s equity in order to acquire CipherTrust yesterday for approximately $274 million in cash and stock.

Since it already appears Secure Computing is long on vision and short on execution — the company has yet to fully integrate and benefit from its acquisition of CyberGuard, which closed in January of this year — there is no reason to believe that the grandiose plans McNulty has for CipherTrust will come to fruition. In fact, it is likely that McNulty, who didn’t appear to take enough time after the CyberGuard acquisition to derive hard-earned lessons from the experience, has vastly underestimated the challenge of successfully integrating the technologies and people of CipherTrust into the would-be enterprise-security empire of Secure Computing.

The BusinessWeek article also reveals that CipherTrust’s CEO Jay Chaudhry seems to have pushed McNulty into cutting the deal sooner than he might have preferred. Apparently Chaudhry claimed, in a conversation with McNulty a few months ago, that larger players were interested in CipherTrust and would take it off the board if Secure Computing didn’t act quickly.

What follows is a relevant excerpt from the BusinessWeek article:

A few months back, Chaudhry called McNulty and warned him there wasn’t a lot of time: “He said, ‘I will put everything else on hold if you can move forward and try to put together a deal that makes sense.'” McNulty wasn’t thrilled, but badly wanted CipherTrust’s technology—which includes a network of offices that monitor Web activity and e-mail all over the world, identifying hackers by the way they launch attacks before they strike. It reads and analyzes some 120 billion messages a month and catches and blocks more than 250,000 infected “zombie” computers that are doing hackers’ bidding every day. McNulty saw it as a valuable underpinning to bolster all three company’s existing technology and couldn’t let it slip through his fingers.

McNulty clearly had his reasons for pursuing an acquisition of CipherTrust, but it appears that he allowed his counterpart at CipherTrust to pressure him into moving faster than logic dictated. I think it’s a fundamental principle that one company should never buy another one simply to keep it out of the hands of a competitor. If it doesn’t suit your business model, if it doesn’t fit your corporate culture, if it doesn’t pass rigorous due diligence, then you should not proceed. While it seems that McNulty definitely had considered how CipherTrust’s products and technology meshed with those of Secure Computing, he also appears to have rushed the deal, perhaps circumventing some due diligence in the process, just so that he could beat somebody else to the altar with CipherTrust.

But was there anybody else pursuing CipherTrust, or was that a salesman’s ruse employed by Chaudhry to close the deal? From what I have heard, none of the major players in network security were actively engaged in takeover talks with CipherTrust, though the company had approached nearly all of them in a bid to generate interest.

Whatever the case, Secure Computing will have to live with the results now. McNulty can be sure that shareholders, who reacted sharply to a significant earnings shortfall that was announced yesterday along with the acquisition of CipherTrust, will be watching closely. They have shown, along with market analysts covering the company, that they are not afraid to express their disapproval.