VARs: An AMD-Dell Deal Would Hurt Channel Margins

Solution providers on Thursday were lamenting the loss of margin that’s likely to come if Dell begins building systems based on chips from Advanced Micro Devices.

Over the past few weeks, speculation that Dell would begin using AMD chips in its systems has intensified. Dell President and CEO Kevin Rollins said in a Reuters report on Thursday that the Round Rock, Texas-based PC maker is open to using chips from Intel's chief rival. "We're always open" to making changes, Rollins reportedly said at a lunch sponsored by the Boston College Chief Executives' Club. "We want the very best technology for our customers."

On Tuesday, an industry analyst at Piper Jaffray suggested that Dell would be using AMD CPUs as early as the second half of this year. The analyst based his prediction on conversations with PC component suppliers, press reports of Asian manufacturers working on AMD designs for Dell and AMD's recent confirmation of chip shortages.

And a week earlier at the International Consumer Electronics Show in Las Vegas, Dell Chairman Michael Dell gave perhaps the strongest indication yet that he would consider using AMD processors. He said in a CES presentation that it was "a distinct possibility" that his company would consider using AMD processors. In the past, Dell has rebuffed the notion of using non-Intel processors.

Many solution providers have been using systems with AMD CPUs--particularly servers with AMD’s well-received dual-core parts--as a way to differentiate themselves from Dell, which deeply discounts its Intel-based systems. Last winter, CRN obtained a copy of an e-mail that Hewlett-Packard sent to its partners that offered discounts on its AMD servers and suggested the models would give partners a leg-up on Dell.

For solution providers, the biggest concern was maintaining margins on AMD systems. Larry Piland, president of Datel Systems, Kearny Mesa, Calif., said Dell's potential entry into a space where system builders played unfettered could be a problem for those that differentiated themselves with AMD. "It's going to hurt some people," he said.

Paul Giobbi, president of Lake Forest, Calif.-based Zumasys, said he recently began selling branded servers with AMD CPUs without the "typical pricing pressures" and isn’t relishing the idea of going up against Dell. "They could commoditize the hell out of them and make them a less fun to sell," Giobbi said.

But Piland noted that a Dell move to offer AMD-based systems could help Datel break into the corporate space with AMD, where Datel has had trouble with AMD products. "AMD has small penetration in the corporate and education markets. If Dell does it, it will legitimize AMD as a corporate platform," he said.

Solution providers have long charged that Dell enjoys aggressive discounts from Santa Clara, Calif.-based Intel because of their exclusive relationship, in addition to the PC giant’s massive purchasing power.

The industry is closely watching what Dell does because AMD has snared significant market share in dual-core servers, where its chips are widely considered to be faster and more power efficient than competing options from Intel.

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