When news of Xilinx’s suit against Flextronics first broke, the details alleged fraudulent transactions among Xilinx, Flex and two end-customers. The distribution industry, a key player in the global supply chain, wasn’t mentioned in the press release.
In the weeks since, EPS readers have provided a lot of feedback, criticism and opinions and the trade media has sought out public documents associated with the case. In its complaint filed in the California Superior Court in Santa Clara, Xilinx outlines transactions involving distribution. Keeping in mind that a complaint is merely a list of allegations, no company has been found guilty of counterfeiting or anything else alleged in this suit. Here are some excerpts from the compliant.
Xilinx brings this action as a result of Flextronics’ fraudulent and unfair business practices. Flextronics has engaged in a pattern and practice of purchasing Xilinx products based upon misrepresentations about who the ultimate end-user of these products will be. Based upon these misrepresentations, Flextronics is able to purchase Xilinx products at a more favorable price than it is entitled to receive. It then sells products to other customers at higher prices, pocketing the difference. Because of this illicit practice Flextronics had obtained large, wrongful profits at Xilinx’s expense.
Flextronics has also dealt in gray market and counterfeit Xilinx devices. Flextronics purchases these devices from unauthorized distributors and then sells them to authorized customers for large profits. Flextronics then turns back around and takes properly purchased Xilinx devices for that authorized customer and sells them to unauthorized customers for even more ill-gained profit. These devices are typically lower-performance chips re-marked as more highly performing chips, and are sold at the price the higher-performing chip would sell for.
Flextronics has made unauthorized sales of Xilinx’s highly advanced devices to unknown purchasers in Asia. Xilinx devices have many aerospace and defense uses which require sellers to acquire appropriate licenses pursuant to the Arms Export Control Act (AECA). Flextronics made unauthorized sales without securing the appropriate export license and in violation of United States export laws. These unauthorized sales pose a threat to Unites States homeland security.
A small number of customers purchase Xilinx devices directly from Xilinx. Most customers purchase through authorized distributors (or “channel partners.”)
The documents go on to describe the system Xilinx uses to track customers that buy Xilinx parts, particularly high-volume buyers that get preferential pricing. The Xilinx system also compares direct orders against distribution orders and estimated inventory levels at its end-customers and EMS partners. Xilinx found significant discrepancies among reported orders, deliveries and inventory levels. Flex, Xilinx charges, uses its own system to reclassify customer identities. This way, Xilinx alleges, Flex procures parts at high-volume prices and resells them at a profit.
I had an editor once that reminded me that anyone can file a lawsuit and pretty much say anything they want. I hope this case is adjudicated and the charges are examined in a court of law. But any number of things could happen, including settlements and gag orders. If nothing else, these documents may bring to light practices in the supply chain that everybody talks about privately but few make public.