Dell Q2: AMD for PCs - and an SEC probe

Dell's announcement of a broader relationship with Advanced Micro Devices could not overshadow poor second-quarter results and news of a federal investigation into its accounting.

As expected, the world's largest PC maker announced on Thursday that it will ship Dimension desktops and two-processor servers equipped with AMD's chips by the end of the year. Its first embrace of AMD products came in May, when it announced plans to ship a four-processor server based on the chips.

But also on Thursday, Dell revealed that the Securities and Exchange Commission is conducting an informal investigation into some of its accounting practices, including revenue recognition and end-of-quarter policies.

The Round Rock, Texas, company received a letter from the SEC in August 2005 but it is only disclosing the probe now because it has found "some potential issues" during its own review of its accounting practices, said Jim Schneider, Dell's chief financial officer. Dell does not expect the issues to have a material effect on its finances, he said.

Similarly, the cost of replacing recently-identified dangerous battery units isn't likely to hit results, said Dell senior VP for Europe Paul Bell, with unit provider Sony likely to foot much of the bill.

In its second fiscal quarter, ended 4 August, the PC maker's revenue was $14.1bn - a 5 per cent increase, compared with last year. Net profits were $502m, down sharply from $1bn a year ago. Earnings per share came out to 22 cents, exactly what the company had predicted in July but 10 cents below initial expectations.

In the face of the decreased profitability - Dell cites a "buyer's market", especially in Europe - the company has said that in the long term it is happy with product transitions across most lines and improving ratings in customer service, an area for which it has been criticised in the recent past.

On a conference call after the AMD announcement, Dell CEO Kevin Rollins cited the cost advantage the PC company would enjoy, as well as AMD's technology, as the reasons behind the move.

"There is a value in choice," Rollins said. Desktops with AMD's processors will appear next month, while the servers are planned for later in the year, he said.

Dell has danced around the AMD question for years, pledging support for its longtime exclusive relationship with Intel while praising AMD's products.

"In using AMD, Dell's really playing catch-up to HP," said Samir Bhavnani, an analyst with Current Analysis. HP, which reported earnings in line with expectations Wednesday, uses AMD processors alongside Intel chips in desktops, notebooks and servers. "It's really big for AMD, they could wind up closing what could eventually be their biggest customer," he said.

AMD, naturally, was thrilled to hear the news. "Dell's wider embrace of AMD processor-based offerings is a win for Dell, for the industry and most importantly for Dell customers," Marty Seyer, a senior vice president in the chipmaker's commercial business, said in a statement.

Intel was less pleased, but stoic. "It's unfortunate," Bill Kircos, an Intel spokesman, said in an email. "But...we have just introduced an entire new Core Duo and Xeon lineup, the best processors in the world. Couple that with our manufacturing advantages, and it's up to us to convince Dell, their customers and the tens of thousands who sell Intel technology that Core Duo and Intel Inside is the best choice for any computing need."

Tom Krazit writes for CNET News.com. Tony Hallett contributed to this report.