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Dell Inc. and Advanced Micro Devices Inc. could soon be more than neighbors in Texas, reports say.
Financial firm Piper Jaffray & Co. suggests, in a report released this week, that Dell, headquartered in Round Rock, Texas, near AMDs Austin offices, is eyeing a second-half introduction of AMD-processor systems.
Such an introduction—Leslie Santiago, a senior researcher analyst and the reports primary author, suggests Dell Opteron servers could be among the products—would sweep away Dells status as the only large PC maker not offering AMD chips in at least one product line. For Dell, offering AMD-processor systems, particularly servers, would present a broader array of choices for business customers.
“Based on conversations with our sources in the PC supply chain, on recent press reports suggesting that Asian ODMs [designers and manufacturers] are developing AMD-based systems for Dell, and on distributor comments noting shortage of AMD processors due to the possibility of Dell building AMD processor inventory, we strongly believe that Dell will start AMD-based system shipments as early as 2H06,” Santiago wrote.
But, despite what many including AMD CEO Hector Ruiz believe is an inevitable move to offer AMD chips, Dell could also be playing a game of brinksmanship with Intel Corp., as appears to happen from time to time. During 2004, a particularly difficult year for Intel, Dell executives made overtures about a switch. But by early 2005 they began expressing confidence that Intel was getting its road map back in order. Late last year, for example, Dell executives said the companys ninth-generation server line, which is due this spring, will use Intels 65-nanometer server chips.
Dell President and CEO Kevin Rollins, in an eWEEK interview published earlier this month, said offering AMD doesnt make business sense for the PC maker. During that interview, Rollins said selling both Intel and AMD product lines would be confusing to its sales team and customers. He also said Intel appears on the verge of catching up with AMDs performance per watt.
AMDs Opteron server chip, for one, is regarded by many as having distinct advantages over Intels Xeon.
But “Intels got a better road map coming up, in terms of performance and in terms of thermals in the coming year, so thats been very encouraging for us,” Rollins said.
Piper Jaffrays Santiago, however, suggests a new scenario may be unfolding.
Dells founder Michael Dell hinted about offering AMD chips during last weeks 2006 International Consumer Electronics Show in Las Vegas, and Dells sales force, Santiago wrote, has been clamoring for an Opteron server to sell against those from rivals such as Hewlett-Packard Co., IBM and Sun Microsystems Inc.
“We further note Michael Dells recent comments noting the distinct possibility of shipping AMD-based systems,” Santiago wrote. Also, “Our conversations further indicate that Dells sales force is demanding Opteron-based server offerings to be able to better compete in the market.”
Other analysts are also sensing that Dell may be nearing an agreement with AMD.
“I think theyre on the cusp of a deal,” said Roger Kay, president of Endpoint Technologies Associates Inc., in Wayland, Mass.
Next Page: Is competition forcing Dells hand?
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Competition is likely forcing Dells hand, Kay intoned.
“If you dont do it, your competitors are happy because they have a club to beat you with in the enterprise,” he said. “If 88 out of 100 Fortune 100 companies have Opteron servers in their lines, it means that all of them are being supplied by a competitor like IBM or HP. Its not a good thing for Dell to continue to sit on the sidelines while competitors establish beachheads inside good clients.”
Dell might also use AMD chips to offer low-price desktops for businesses as well as resellers, in addition to consumers, another analyst said.
“TBR believes Dell will endorse AMD processors in its PC products within the next two years,” Brooks Gray, an analyst at Technology Business Research Inc., wrote in a recent report. “TBR expects Dell will target white-box vendors with Dell-branded AMD-based PCs, and with non-branded platforms via the OEM group. It is likely that Dell would substitute AMD-based systems for its current Celeron desktop platforms. The consumer and value-oriented Dimension 2400 and 3000 desktop series are good examples of where AMD processors could fit into the Dell portfolio.”
For its part, Santiagos report suggests that AMD could soak up a fair amount of Dell machines. The analysts research shows AMD could achieve a run rate of 10 percent of Dells servers, 5 percent of its desktops and 3 percent of its notebooks during the latter half of 2006. It could jump to 20 percent of Dells servers, 10 percent of its desktops and 6 percent of its portables during 2007, he wrote.
AMD would gain financially as well. Sales to Dell could bump up the chip makers second-half 2006 revenue by $144 million, Santiagos report said.
An AMD spokesperson declined to comment on the reports. A Dell spokesperson said the companys plans are unchanged.
Overall, Gordon Haff, an analyst with Illuminata Inc., in Nashua, N.H., said there are strong arguments for Dell to adopt AMD chips, particularly given its earnings results of the past couple of quarters.
“Dell hasnt been doing so great recently, and one of the reasons is that Opteron has somewhat of an advantage over Intel products,” Haff said. But “anybody who does not have special knowledge of Intels or Dells or AMDs executive suites is purely speculating.”
On the other hand, it might have been more advantageous for Dell to have adopted AMD chips six to nine months ago, when AMD enjoyed a much greater advantage over Intel, Haff said.
“Even if Intel hasnt really caught up with AMD in the server space, theyve recognized their deficiencies and are clearly making the investments, clearly making the effort … to get on the battlefield with AMD,” he said. “Six to nine months ago, things were darker [for Intel]. Why [make the move to AMD] now when the battle is engaged?”
Editors Note: Jeffrey Burt contributed to this story.