Intel’s veiled warning…

May 14, 2009

Yesterday, the big news was the $1.45 billion fine that the European Union levied against Intel (INTC). The headline in this morning’s WSJ is particularly alarming: Intel Fine Jolts Tech Sector. Here’s a link to Intel’s statement on the fine from Intel President and CEO Paul Otellini.

Given the news, I decided to go back and look at Intel’s previous disclosures on its issues with the European Union (it’s sometimes described as the European Commission of EC) in the filings. While Intel’s disclosures were written in something that vaguely resembles English, they were there. Indeed, this issue was first mentioned in a Q filed back in August 2005 (though the issue itself dates back to August 2001). Still, a careful parsing of Intel’s disclosures, especially over the past year, would have given some hints that things were heating up.

While this one new sentence in the 10Q that Intel filed on April 30 wasn’t that easy to catch, it certainly gave a nice-sized hint: “On March 18, 2009, the EC sent Intel a request for information concerning Intel’s worldwide and European turnover. Intel responded to the request on April 3, 2009.” That’s especially true when you read that sentence with this earlier one: “The EC’s rules provide that the maximum monetary fine could equal 10% of Intel’s global turnover for all products and services for the prior fiscal year.”

Now, of course, the folks at the EC probably didn’t need to ask Intel for that number. They could have just gotten it from the 10-K that was filed back in February. Or the year-end earnings release. But the fact that they asked for it and that Intel disclosed that the EC had asked for it should have provided enough of a hint that this wasn’t going to be a slap on the wrist.

Now as long as we’re on the subject of Intel’s revenue, it was $37.5 billion in 2008. So the $1.4 billion fine, while not nothing, works out to around 3.7% of Intel’s 2008 turnover. In other words, it could have been a lot worse. And as Intel said yesterday, it plans to file an appeal anyway.

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