Mythbusting: Intel Isn’t Really Paying Tablet Makers

Offsetting the value of a sale isn’t the same as greasing customers.

Jan 22, 2014 at 3:15PM

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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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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