Mythbusting: Intel Isn’t Really Paying Tablet Makers

Word has it that Intel (NASDAQ: INTC  ) is paying for tablet sales. Yet if you understand the accounting term "contra revenue," you'll know that's not entirely true, Fool contributor Tim Beyers says in the following video.

If revenue is the amount of money collected from sales, "contra" revenue is money forfeited via returns, incentives, and discounts. Headlines nevertheless describe Intel's efforts to put its new "Bay Trail" chipset in some 40 million tablets this year as just short of bribery.

Value is where truth and myth meet. By offering incentives, and then documenting the discounts as "contra" revenue, Intel is paying for a foothold in a market that's proven difficult to crack. Unsurprising when you consider that Samsung decided to forgo Intel in its new Galaxy Pro tablets. Contra revenue allows Intel to keep its list prices for Bay Trail stable while pursuing market share. Think of it as the difference between a blowout sale at your favorite retailer and anti-competitive dumping.

How should Intel investors treat the change? For now, Tim says, it's probably best to focus on operating income since contra revenue will skew top-line results for at least a few quarters.

Do you agree? What do you think of Intel's tablet strategy? Please watch the video to get Tim's full take  and then leave a comment to let us know whether you would buy, sell, or short Intel stock at current prices.

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  • Report this Comment On January 22, 2014, at 6:29 PM, techy46 wrote:

    Intel sells 40 million Atom Bay Trail-T 22nm chips to tablet makers for $32 each and offers them $15 per tablet to offset the Bill of Materials costs (board layers, support chips, etc.) required to offer the devices because Bay Trail-T is going to be superceded by an Atom 14nm part later in 2014. The $1.28 billion in Atom revenues will be offset by the $600 million in BOM support fees. That's no different then what Microsoft did with Nokia and the Windows Phone OS.

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