Dell does AMD deal

Dell has agreed to use AMD's Opteron chip in multiprocessor servers by the end of the year, ending a long-standing policy of sticking exclusively with Intel.

The PC maker made the move public in its first-quarter results press release on Thursday. Speculation has mounted for years as to whether Dell would adopt the AMD's chips, despite Dell's exclusive relationship with rival Intel up to this point. AMD has enjoyed a performance lead in server benchmarks over Intel's Xeon processors.

Marty Seyer, an AMD senior VP for commercial business, said in a statement distributed after Dell's results: "We welcome Dell, and Dell customers, to the world of AMD64."

Although the deal is confined to servers at this point - and it's not clear exactly when the servers will arrive, other than before the end of the year - it still represents another win for AMD, which has had a long string of wins over its rival. Intel's profits and stock price have suffered in recent quarters, due in part to AMD's increasing market share.

Dell's decision to abandon its long-standing all-Intel policy comes amid less-than-stellar profits for its first quarter. The results were in line with the warning the company provided last week. Revenue was $14.2bn, up six per cent from last year, but net profit slid 18 per cent to $762m.

Earlier this week, company founder Michael Dell admitted the PC seller's performance over the last year had been disappointing. "I think there are lots of opportunities for us to do quite a bit better than we did last year," he said at the Future in Review conference on Monday. "We didn't recognise how competitive the market was going to be."

In the hope of getting back on the right track, Dell will accelerate plans for $3bn in cost cuts and will spend $100m on improving its customer service, CEO Kevin Rollins said on Thursday.

The cost cuts will come from improving the efficiency of its support and manufacturing processes, Rollins said on a conference call following the results announcement. "We'll have the flexibility to price more effectively," he said, adding there are no plans for job cuts.

Paul Bell, Dell senior VP for Europe, added: "We will look at how we further differentiate using the direct model."

He cited the example of Dell Connect, aimed at consumers and small businesses, which allows support staff to 'dial in' to an end user's PC to rectify problems such as removing spyware.

Bell said there is no reason to embrace a bricks-and-mortar strategy, adding "the fundamentals are still quite sound".

CEO Rollins said Dell's initial embrace of AMD will only involve servers with four processors - a relatively small category of the server market. There are no plans to sell AMD's chips in desktop PCs, laptops or other servers at this time, he said.

Dell is likely to launch its first AMD-based products in the autumn, according to Bell.

In an interview later on Thursday, AMD's Seyer said the company has been demonstrating its technology to Dell for years.

He said: "I've replaced a third set of tyres on my car going back and forth" over the past four years.

Several times during the last few years, Rollins has hinted that the company was right around the corner from introducing products based on AMD's chips. Ever since AMD introduced Opteron in 2003, the processor has enjoyed an advantage over Intel's Xeon. During an extended period in 2005, server vendors HP, IBM and Sun Microsystems were shipping dual-core versions of the Opteron processor, and Dell could offer only single-core Xeon processors.

AMD's progress on the Dell account, though, was steady. When AMD took more than 10 per cent of the market for Intel-AMD chips in early 2005, it was a pivotal point for establishing AMD's credibility among business buyers. Some government customers also began to specify that they wanted "Opteron or equivalent" servers in the bid proposals, Seyer said.

He added: "In the second half of 2005, Dell's customers began to speak quite loudly about Opteron."

Sources close to AMD, however, said a deal between Dell and AMD wasn't signed until this year.

silicon.com's Tony Hallett contributed to this report

Tom Krazit, Michael Kanellos and Ina Fried write for CNET News.com