Telecom Signaling Industry News

[May 19, 2006]

Dell server to use AMD chips: Computer maker to keep longtime supplier Intel in PCs

(Dallas Morning News, The (KRT) Via Thomson Dialog NewsEdge) May 19--Dell Inc. will introduce a server using Advanced Micro Devices Inc.'s processor chips, ending its longtime fidelity to Intel Corp., the company said Thursday.

The move has serious implications in the computer industry. The relationship between Dell and Intel has been one of the mightiest alliances in the technology world and is considered a key part of Dell's success, giving it pricing power and efficiency.

But AMD has been chipping away at Intel's dominance in the last year. Dell has been hamstrung by using Intel as its sole supplier and needs to offer AMD-based products, analysts have said.

The AMD news overshadowed Dell's first-quarter earnings report Thursday. The company's profit fell 18 percent from a year ago, and sales grew 6 percent, a tepid rate compared with previous quarters.

"The market intensified a bit more than we understood or maybe even acknowledged earlier in the year," chief executive Kevin Rollins said. "Some of our competitors were a little stronger than we had thought."

Dell is making investments in technology and customer experience to resume its pattern of growth, he said.

For part of the growth, Dell will look to AMD, based in California with major operations in Austin.

The AMD-based Dell server, to be introduced by the end of the year, will have four Opteron processors. That means it will be in a high-end category mainly aimed at big, corporate customers, said Roger Kay of Endpoint Technologies Associates, a research firm.

"This is the area where they were hurting the worst," he said.

The server product allows Dell to test how well it would work with AMD as a supplier. Four-processor servers aren't mainstream products, and they certainly don't sell in high volume the way PCs do.

Intel is still the sole supplier of processors for Dell's personal computers, except for computers made by its recently acquired Alienware unit. But Dell didn't rule out using AMD chips in other products.

"We will still be launching throughout this year a broad base of Intel products," Mr. Rollins told reporters on a conference call.

Dell's sluggish first quarter results were no surprise, since the company announced earlier this month that it would miss its first-quarter forecast.

First-quarter income fell to $762 million, or 33 cents a share, from $934 million, or 37 cents, as Dell slashed prices and made investments. Sales rose to $14.2 billion from $13.4 billion.

The company said it expected similar income in the second quarter as it continues to adjust prices and strategy. After this quarter, Dell will no longer make quarterly forecasts, saying it will focus on long-term goals instead.

Shares of Dell, based in Round Rock, Texas, rose 32 cents to $23.95. Following the earnings report and AMD announcement, shares jumped more than 2 percent in after-hours trading.

Shares of Intel, based in Santa Clara, Calif., fell 93 cents after hours, or 5 percent, to $17.72, and shares of AMD, based in Sunnyvale, Calif., rose $4.15 to $35.50.


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