October 26, 2004 4:00 AM PDT

For Dell and AMD, a tantalizing question

ROUND ROCK, Texas--Will Dell take the AMD plunge?

One of the chief questions in the PC market for the next couple of years will be whether the computer maker will incorporate Opteron or Athlon chips from Advanced Micro Devices into its systems. Intel's release of chips that can provide a similar 32-bit/64-bit functionality--one of the key factors of Opteron's popularity--has likely tabled the issue for now, according to several analysts.

But there are other factors at work, too. AMD is gaining customers in the corporate world--20 of the Fortune 100 have installed Opteron servers. The Sunnyvale, Calif.-based company has also shown that its technology can equal and even best Intel's.

News.context

What's new:
AMD is making gains in chip technology and corporate customers--and now Dell executives are getting more generous in their praise for the company.

Bottom line:
The compliments are all well and good, and could be a favorable omen. But AMD is still waiting for the PC giant to actually adopt its chips for use in Dell systems.

More stories on these two companies

Dell certainly has good things to say about AMD. In interviews with CNET News.com editors and reporters at the company's headquarters here last week, numerous executives extolled the strides the Intel rival has made in designing and manufacturing server and desktop chips.

"AMD has been getting much better at turning out their technology, and their technology has improved," said Kevin Rollins, Dell's CEO.

"We see the technology gap closing," added Jeff Clarke, senior vice president of the Dell Product Group, who noted that AMD came out with the first 32-bit/64-bit chips and may beat Intel to the punch with the release of dual-core processors that will significantly boost performance in servers. "You could argue that in those two particular cases, they (AMD) are leading," he said.

Then, as quickly as the compliments come, Dell executives list a host of reasons why the company won't make the move to AMD, sounding somewhat like a person who likes the sound of escargot but doesn't want a plate full of snails. The executives say few of Dell's customers are asking the PC maker to offer Opteron-based servers, and Dell continues to grow far faster than its competitors. Business buyers tend to be more comfortable with Intel chips, given Intel's powerful brand and historical ability to mass-manufacture processors.

"We still don't see a strong demand from our customers, and nothing has changed about our strategy going forward," said Steve Felice, vice president of Dell America's Corporate Business Group, who manages relationships with the Fortune 2000.

Adopting AMD chips would also require that Dell design and build new lines of computers, adding cost and production complexity. For a company that devotes resources to shaving seconds off the length of time it takes a factory worker to pull parts out of a bin, that's not good.

"We're the most successful PC company on the planet and we don't have AMD," Rollins said.

The CEO himself emphasized that he has no interest in handing AMD a symbolic victory by using the company's chips in a low-volume model.

"Could I do it?" he asked rhetorically. "Yeah, but why?"

Additionally, AMD gives Dell a lever. Sources say Dell has been on the verge of deals with AMD a number of times, only to back away late in the process after wringing concessions from Intel. (Microsoft similarly awarded Intel the Xbox contract at the 11th hour.)

"They have come close many times. Dell has profited tremendously from AMD participating in the process, without ever having to deal with AMD," said Nathan Brookwood, an analyst at Insight 64. "I think of it as Lucy holding the football for Charlie Brown."

CONTINUED: On the bright side for AMD…
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