Dell Expands Relationship with AMD to Desktop

Staff Reporter -- Electronic News, 8/17/2006

Dell announced an expansion of its relationship MPU maker Advanced Micro Devices as part of its Q2 earnings release that revealed higher revenue but disappointing operating income due to a slower market and aggressive pricing.

Observers noted that while Dell's move towards the use of AMD's processors has been slow and cautious, it is nonetheless significant.

"AMD has been successful in overcoming many of Dell's concerns about quality, performance, and manufacturing capacity over the past few years," said Jim McGregor, principal analyst at In-Stat, in a report issued after the call. [In-Stat is a sister company of Electronic News.] "In many aspects AMD is a true competitor to Intel in processor design and now boasts two fabs in operation in Dresden, Germany, plus a relationship with the third largest semiconductor founder, Chartered Semiconductor, which has begun shipping AMD processors."

In a call with analysts on Thursday, Dell noted that AMD platforms offer a lower cost model to the PC maker, and that customers have been demanding AMD processors. In addition, Dell said that by having multiple suppliers it can offer customers a choice while also leveraging the pricing benefits of competition between Intel and AMD.

All these factors contribute to AMD's continuing momentum in the market place, according to Tim Luke, managing director at analyst firm Lehman Brothers.

"With positive recent announcements from key OEMs, including IBM on plans to expand its relationship with AMD in servers and Lenovo on plans to expand its relationship with AMD in desktops, we believe AMD has an entrenched position in the microprocessor market and could continue to chip away at Intel's leading share," he said.

Dell reported revenue of $14.1 billion for Q2, a 5 percent increase year-over-year. Operating income was $605 million or 4.3 percent of revenue, including $119 million in stock-based compensation. Operating income was lower than Dell’s may expectations on similar revenue due to aggressive pricing in a slow market.  As a result earnings per share for Q2 were 22 cents.

"While we are disappointed with the results for the quarter, we are taking the necessary actions to correct missteps and improve our results for the long term," said Kevin Rollins, CEO, in a statement. "Key actions include accelerating cost initiatives, increasing investments in service and support, and better pricing management."

Dell also said it would expand its relationship with AMD, first announced last quarter. Previously Dell exclusively used Intel processors in its PCs, servers and notebooks.

The PC maker said Thursday that it plans to launch Dimension desktop computers with AMD processors next month and will introduce a two-socket and multi-processor server using AMD Opteron processors by the end of the year.

Dell said in a statement that it is also enthusiastic about Intel’s recent launches of the Core 2 Duo for desktops and Xeon 5100 Series processors for servers and workstations, and the upcoming Merom processor notebooks.

“Dell’s partnerships with AMD and Intel will greatly enhance its ability to end the year with the broadest and best product line in its history,” the company said in a statement.