Intel audit team poised to swoop on UAE partners

Intel’s EMEA auditing bandwagon will roll into the UAE at the end of November. The chip giant continues to examine if assemblers in certain Middle East markets are achieving their integration rate targets as required by their status on the Intel Inside Programme. The audit of UAE assembly partners comes hot on the heels of an identical review in Egypt that saw some local PC builders suspended from the scheme.

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By  Andrew Seymour Published  October 23, 2006

Intel’s EMEA auditing bandwagon will roll into the UAE at the end of November. The chip giant continues to examine if assemblers in certain Middle East markets are achieving their integration rate targets as required by their status on the Intel Inside Programme. The audit of UAE assembly partners comes hot on the heels of an identical review in Egypt that saw some local PC builders suspended from the scheme. UAE inspections are set to take place between November 26th and December 14th, giving Intel’s auditing team a three-week window to conduct on-site visits of local PC builders. At least two local assemblers confirmed that they have received correspondence from Intel instructing them that the audit would take between three and seven days to complete. A member of the Intel EMEA team linked to the audits was contacted by Channel Middle East, but declined to comment. One Dubai-based PC assembler said it planned to begin preparing for the audit within the next few days: “In the past we were just inspected and they would come over to look at our assembly place and visit the showroom. But this is the first time that an audit like this has happened.” In confidential documents seen by Channel Middle East, Intel said the audit was necessary to “validate the accuracy of the current processor integration rate and to ensure advertisements and claims are in compliance with terms and conditions.” The documents make it clear that any assembler found to have overstated its integration ratio, or who fails to comply with the audit, risks being suspended or dropped from the programme. The vendor also threatens other punishments, including the recovery of prior marketing payments and a reduction in accrued Intel Inside funds. One UAE PC assembler said Intel had every right to perform the audits, but questioned how effective the process would be. “In their terms and conditions they have the right to do this, but on our terms and conditions it is not always possible. Sometimes the policy and the methodology of business in the Middle East is not the same as the European market. We are not an HP, IBM or Acer. We are a small company and in the market here most of the companies are doing assembly the traditional way.” Following the Egyptian audit, some local assemblers were told that backdated marketing funds were being withheld because their integration rate was as low as 40%. The issue of integration rates is even more emotive in the UAE given that the local market remains small in terms of the overall domestic consumption of IT products, but much larger in terms of export. The typical quarterly output of local PC producers in the UAE is between just 14,000 and 16,000 units according to IDC data, meaning indigenous PC assemblers rarely account for anything more than 10% of the total market. Assemblers in the UAE who have received a letter from Intel informing them of its forthcoming visit are now gearing up for their manufacturing and sales processes to be heavily scrutinised by the vendor’s auditing experts. The auditing process will include an examination of documents to support current integration rates, a physical review of manufacturing facilities, and an assessment of claims and payments made under the Intel Inside Programme during the 12 months between October 1st 2005 and September 30th 2006. Intel has also instructed assemblers that in order to conduct the audit it will require private onsite workspace for up to five auditors, access to manufacturing facilities where PC assembly is carried out — including permission to take photographs — and access to a broad range of company records. In correspondence seen by Channel Middle East – which was sent to local assemblers from Intel’s EMEA programme marketing finance manager Tim Whitrow – Intel said assemblers would be contacted within seven days of receiving details about the audit to ensure that they are able to comply with its plans. The components giant has laid out a seven-point plan that assemblers are advised to follow to “minimise the onsite duration of the audit and the support required from your team.” This includes a list of dates when it is not suitable for an onsite visit to occur; addresses of all manufacturing sites; attendance on a pre-audit phone meeting; and details of any licenses that the auditing team might need to access certain offices and manufacturing facilities. Assemblers are also obliged to complete a pre-audit questionnaire and prepare an extensive list of documents. The eight-page questionnaire, which Intel plans to use in the course of the audit, requires assemblers to divulge information about the company’s structure and management during the past 12 months, key contacts within the organisation, such as the Intel Inside Programme administrator and sales staff, the level of Intel Inside expenditure, and the proportion of Intel products that are integrated into PC systems. The form also asks PC assemblers to disclose a series of details about their inventory management policies, invoicing methods for Intel products, and the scale of their manufacturing processes, including a breakdown of the total number of shifts worked by factory staff. In addition to the questionnaire, Intel has instructed assemblers to prepare an exhaustive list of documents for the audit including purchasing records, monthly inventory data, sales reports for Intel-based systems, methodology for calculating Intel CPU integration, and details of any transactions involving sub-contracted manufacturing partners. One assembler, which told Channel Middle East it expected to be part of the audit, said it was unconcerned about the volume of documentation and data that it must supply, but questioned his ability to meet all of Intel’s demands: “I think the way that we heard Intel conducted the audit in Egypt is not healthy for us in the sense that you can’t really give all the data you have. You cannot always be 100% accurate about your [integration] percentage because it fluctuates and there is so much old data that sometimes we ourselves cannot even dig through it to determine where every system was shipped and how it was shipped. If Intel was only asking for us to support it by sending through this information it would be alright, but I’m not really comfortable with it coming over and digging through all our specifics and details.” Another local assembler added: “There is an automatic letter [about the audit] that comes to all the resellers here in the market, but I can’t confirm who has received it. I think most of the companies on the Intel Inside Programme should receive it because it would not be fair to inspect some and not others. I’m sure it’s something that Intel has the right to do, but whether it’s a suitable time or not is the question.” Following the recent audits in Egypt, Rola Zaarour, communications manager at Intel Middle East, Turkey and Africa, issued a statement to Channel Middle East saying that Intel coducts “regular audits” of all Intel Inside Programme licensees as part of its normal business procedure. “The Intel Inside Programme is one of the world’s largest branding and cooperative marketing programmes. Intel and its customers have invested billions of dollars in the programme to create a recognisable mark of quality, and, as such, inherent value for our customers. The company has an obligation to both customers and shareholders to protect that investment,” the statement concluded.

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