Dell to Sport AMD PCs?

 
 
By John G. Spooner  |  Posted 2006-08-17
 
 
 
Dell may go all the way with Advanced Micro Devices.

The Round Rock, Texas, PC maker may announce, as soon as Aug. 17, plans to offer AMD chips in Dell-brand PCs, expanding on Dells previously announced plan to deliver AMD processor-based servers by the end of 2006, analysts say.

A broader Dell-AMD product line has been predicted for some time by industry watchers. Its arrival would signal a move by Dell to reinvigorate its product line and increase its ability to compete with rivals such as Hewlett-Packard.

Dell, which is set to report its second-fiscal-quarter earnings after the close of Wall Street on Aug. 17, has been hurt of late by sagging customer satisfaction levels—a challenge it said it would meet by investing in service, support and product design—as well as a newly unveiled problem with supplier Sony which lead to the Aug. 14 recall of 4.1 million battery packs shipped in Dell notebooks over the last two years. Dell also issued a second-quarter profit warning on July 21.

"In our view a potential announcement of: (1) a step-up in the already high pace of share buybacks, (2) an increase in Michael Dells day to day involvement, or (3) AMD-based desktop and notebooks could act as positive near-term catalysts for the stock. We think such announcements could be made in conjunction with Thursdays earnings release and/or Septembers analyst meeting," Cindy Shaw, an analyst with Moors & Cabot Capital Markets, in San Francisco, wrote in an Aug.16 report.

Dell had, for years, been an Intel-processor-only shop. But in 2006 it began a slow move toward AMD. For example, it purchased high-performance PC maker Alienware in March 2006, and owning Alienware technically makes Dell a distributor of AMD-processor PCs. However, Dell has yet to announce a Dell-brand desktop or notebook with an AMD chip inside.

Moving to offer AMD-based PCs would allow Dell to match its rivals products, which offer AMD processors, analysts said.

Dell officials have said the motivation behind the companys decision to use the Opteron chip was threefold, involving customer demands, the technological capabilities of the Opteron and the need to fill a gap at the high end of its server product line.

The PC maker has thus far publicly only said that it intends to begin building a line of multiprocessor servers—machines that offer four or more processors—using AMD Opteron processors before the end of the year.

Dells Aug. 17 second fiscal quarter earnings report is expected to give 22 cents a share and revenue of $14 billion for the quarter that closed at the end of July, according to Thomson Financial, in New York.

Dell warns on its second-quarter earnings.

However, Dell may wait until its analyst meeting, set for Sept. 12 and 13 in New York, to offer greater details on its turnaround plans, analysts said.

Bill Shope, an analyst with J.P. Morgan, in New York, said in an Aug. 15 research note that Wall Street will be looking for Dell to offer further detail on the following: any operational issues, the impact of more aggressive pricing on profit margins, and enterprise demand, which is the current wild card. Dell pointed to aggressive pricing in the enterprise space as the main reason for its second-quarter profit warning.

Shope said in the report that Dell needs "major structural and strategic actions. These changes should include, but not be limited to the following: substantial changes in business leadership structure; significant refinements to the direct model in the consumer space; restructuring initiatives to lower discretionary spending and product cost structure; and a more substantial move to AMD."

Dell officials in Round Rock, Texas, could not immediately be reached for comment for this story.

AMD, for its part, has declined to comment on various reports about Dells plans.

However, "We would welcome an expansion of Dells AMD-based offerings beyond its stated plans to launch AMD Opteron-based servers," a company spokesperson in Austin, Texas, told eWEEK in a recent e-mail.

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