May 18, 2006 2:00 PM PDT
Dell opts for AMD's Opteron
The PC maker made the move public in its first-quarter earnings press release on Thursday. Speculation has mounted for years as to whether Dell would adopt the company's chips, despite Dell's exclusive relationship with rival Intel to this point. AMD has enjoyed a performance lead in server benchmarks over Intel's Xeon processors.
"We welcome Dell, and Dell customers, to the world of AMD64," Marty Seyer, an AMD senior vice president for commercial business, said in a statement distributed after Dell's earnings release.
Although the deal is confined to servers at this point--and it's not clear exactly when the servers will arrive, other than before the end of the year--it still represents another win for AMD, which has had a long string of gains over its rival. Intel's earnings and stock price have suffered in recent quarters, due in part to AMD's increasing market share.
Dell's decision to abandon its longstanding all-Intel policy comes amid less-than-stellar earnings for its first quarter. The results were in line with the warning the company provided last week. Revenue was $14.2 billion, up 6 percent from last year, but net income slid 18 percent to $762 million. Dell said it's no longer giving specific quarterly financial guidance, though it did say the second quarter should be similar to the first.
Earlier this week, company founder Michael Dell admitted the PC seller's performance over the last year had been disappointing. "I think there are lots of opportunities for us to do quite a bit better than we did last year," he said at the Future in Review conference Monday. "We didn't recognize how competitive the market was going to be." In hopes of getting back on the right track, Dell will accelerate plans for $3 billion in cost cuts and will spend $100 million on improving its customer service, CEO Kevin Rollins said Thursday.
The cost cuts will come from improving the efficiency of its support and manufacturing processes, Rollins said on a conference call following the earnings announcement. "We'll have the flexibility to price more effectively," he said, adding there are no plans for job cuts.
Rollins said Dell's initial embrace of AMD will only involve servers with four processors--a relatively small category of the server market. There are no plans to sell AMD's chips in desktop PCs, notebooks or other servers at this time, he said.
"Our customers expressed a desire for that technology," Rollins said, referring to Opteron. "We will still be launching this year a broad base of Intel products."
In an interview later on Thursday, AMD's Seyer said that the company has been demonstrating its technology to Dell for years.
"I've replaced a third set of tires on my car going back and forth" over the past four years, he said.
Several times during the last few years, Rollins has hinted that the company was right around the corner from introducing products based on AMD's chips. Ever since AMD introduced Opteron in 2003, the processor has enjoyed an advantage over Intel's Xeon. During an extended period in 2005, server vendors Hewlett-Packard, Sun Microsystems and IBM were shipping dual-core versions of the Opteron processor, and Dell could offer only single-core Xeon processors.
AMD's progress on the Dell account, though, was steady. When AMD took over 10 percent of the market for Intel-AMD chips in early 2005, it was a pivotal point for establishing AMD's credibility among business buyers. Some government customers also began to specify that they wanted "Opteron or equivalent" servers in the bid proposals, Seyer said.
"In the second half of 2005, Dell's customers began to speak quite loudly about Opteron," he said.
Sources close to AMD, however, said a deal between Dell and AMD wasn't signed until this year.
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