Update: Dell To Use AMD In New Servers

server Opteron

Dell plans to use Opterons in multiprocessor servers, said CEO Kevin Rollins.

"We're making sure that in every product category we have the best technology for our customers," Rollins said on a conference call with financial analysts. "In the multiprocessor server space, we think we can do better and the Opteron product can fill a hole there."

Dell's AMD-based server is expected to be a four-way model, an area that Rollins said is "fairly small" in terms of unit sales.

Dell is following through on remarks earlier this year from Chairman Michael Dell that there was a "distinct possibility" his company would begin using AMD chips in its systems. Also, Dell closed its acquisition earlier this month of Alienware, the Miami-based computer maker that used some AMD chips in its high-performance desktops and notebooks.

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Round Rock, Texas-based computer maker Dell, struggling to regain strong sales and profit growth, unveiled the strategy change Thursday with its quarterly earnings announcement. Dell turned in a profit of 33 cents per share on revenue of $14.2 billion for its most recent quarter, in-line with its pre-announcement from last week, which disappointed investors.

AMD's Opteron has gained steam in the market over the past year thanks to strong performance coupled with power efficiency, solution providers have said. It has become a requested option from business customers, particularly those using high-end servers and high-performance computing, they said. AMD's success in servers can be seen in its market share growth. In 2005 it more than doubled its share to 16.4 percent, according to Mercury Research.

Solution providers have been using Dell's Intel-only strategy to differentiate themselves from the online marketer, which is known for aggressive discounting. As part of a new VAR program AMD rolled out last year, some solution providers said they were able to beat Dell in bids by using AMD-based servers.

Though today's news eliminates that competitive advantage, solution providers and system builders contacted for this article indicated that they are not alarmed.

"Of course, whenever Dell makes an announcement that they'll be selling products we've had success selling, it's a competitive concern because they move such large volumes and use price as their favorite weapon," said Todd Swank, director of marketing at Northern Computer Technologies, a Burnsville, Minn., system builder. "I don't think this announcement changes things that much for how we compete with Dell, though."

"For many years, we've offered the choice of either AMD or Intel to our customers and have a great relationship with both CPU companies,' he added. "Our Voyageur PC resellers separate themselves from Dell by offering high quality IT solutions with professional local support. As long as Dell continues to outsource customer service and treat their customers the way we hear they treat their customers, this announcement shouldn't have much affect on our business."

Bill Nemesi, a brand executive for Mainline Information Systems, a Tallahassee, Fla., solution provider and member of AMD's VAR program, said Dell's foray into AMD products doesn't guarantee success.

"I think it creates an opportunity for Dell but it also creates an opportunity for us," he said. "When you choose both AMD and Intel it requires twice the work. Now you have two different models. Whether Dell will be successful with that or not remains to be seen."

One solution provider, who asked not to be named, also wondered about the timing of Dell's announcement. Systems based on Intel's next-generation server processor, code-named Woodcrest, are expected to hit the market this summer, earlier than their initial forth quarter release date. Intel is promising those processors will give AMD's Opteron a run for its money. This solution provider is wondering if Intel's processors are still on schedule, given that Intel has seen significant slips in its delivery dates over the past couple of years.

"I'm wondering if they are nervous enough to be leveraging their bets," the solution provider said.

Ben Williams, vice president of AMD's new Commercial Business unit, believes most AMD partners will view the Dell news as a positive. "It will just reinforce that AMD has a competitive advantage from a product standpoint," he said.

Updated 5/18/06 at 9:27 PM EDT