Dell Adopts AMD Chips, Nicks Intel

By Mike Rogoway, The Oregonian, Portland, Ore.

May 19–Et tu, Dell?

With sales sliding and profits plunging, Intel took a hit Thursday from Dell Inc., the chip maker’s top customer and the nation’s largest computer retailer.

Dell, which provided nearly a fifth of Intel’s sales last year and which historically has used only Intel chips, said Thursday that it would start offering some top-end servers with microchips from Intel’s main rival, Advanced Micro Devices Inc., by year’s end. Servers are powerful computers that run corporate computing networks.

The news is no surprise. Analysts expected Dell’s monogamous relationship with Intel to end by summer. And by itself, it’s not a big hit financially for Intel. The vast majority of Dells will still come with Intel inside.

But Dell’s decision is a symbolic blow, indicating that AMD’s high-performance, energy-efficient processors are winning over even Intel’s most loyal customers. AMD has tripled its share of the server market since 2004 and now accounts for about 15 percent of sales in that segment, according to IDC, an industry researcher.

Further, Dell’s defection suggests Intel will have to hold the line on prices, thereby holding down profits, to hang on to market share. Prudential Equity Group’s Mark Lipacis, who forecast Dell’s switch last week, wrote that Dell would increase pricing pressure on Intel by adopting AMD chips.

Intel, based in the Silicon Valley, is the world’s largest chip maker. It employs about 17,000 people in Oregon, its biggest base of operations, but froze hiring this spring after reporting disappointing sales and profits. Dell’s sales and profits, reported Thursday, missed targets. Net income fell 18 percent in the first quarter.

Dell earned $762 million, or 33 cents a share in the three months ended May 5, compared with $934 million, or 37 cents a share, in the year-ago period.

Analysts had expected 38 cents a share on revenue of $14.5 billion, according to a survey by Thomson Financial.

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