Dell-AMD deal a blow for Intel
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By Ian King
Bloomberg News
May. 20, 2006
SAN FRANCISCO - Dell Inc.'s decision to end its 22-year exclusive use of Intel Corp. computer chips marks the biggest victory for Advanced Micro Devices Inc. in its battle to take market share from the world's largest chipmaker.
Shares of Advanced Micro posted their biggest gain in 18 months Friday after Dell, the world's largest personal-computer maker, on Thursday said it will use Sunnyvale, Calif.-based AMD's Opteron processor in some server machines. Intel shares dropped 1.6 percent.
For AMD, which topped 20 percent of the market for chips that run servers for the first time ever last quarter, the agreement is a foothold in the only major PC maker that wasn't using its microprocessors. The switch is a setback for Intel Chief Executive Officer Paul Otellini, who is already under pressure to stem a slide in profit and market share.
"Advanced Micro looks like a better-run company right now," said Jim Benham, a fund manager at Benham & Green Capital Management His firm oversees $100 million and recently sold its Intel shares. "Intel has dropped the ball."
AMD shares rose $3.60, or 11 percent, to $34.95 in New York Stock Exchange trading. Santa Clara, Calif.- based Intel, the worst performer in the Dow Jones industrial average this year, fell 29 cents to $18.36 in Nasdaq Stock Market trading and have dropped 26 percent this year.
Dell and AMD had been talking for years, AMD Chief Executive Officer Hector Ruiz said Friday.
"We didn't do anything special" to win the order, Ruiz said. "They've always expressed a strong desire to have AMD inside Dell boxes and it just finally happened."
Ruiz said he is optimistic that the order will open the door for AMD to win orders from Dell for chips for PCs, Dell's largest unit.
"We have been anticipating, and we have the manufacturing strategy in place to meet that demand," Ruiz said.
AMD's Ruiz has transformed the company from an also-ran that offered low prices to desktop-computer makers to one that leapfrogged Intel in technology to gain share in server computers, which run corporate networks and Web sites, along with desktop and notebook machines.
As Intel's only major competitor, AMD won 22 percent of shipments for the most common type of server chips in the first quarter, up from 16 percent in the fourth period, Mercury Research analyst Dean McCarron said. Dell will use Opteron chips in server machines that need more than one processor.
"There was clear acceptance" for AMD in high-end markets, Michael Dell, chairman and founder of the Round Rock, Texas-based company, said in a conference call with analysts. "AMD was very successful."
Dell's acceptance could help AMD break Intel's stranglehold on sales of desktop computers used in company offices.
Ruiz wooed customers by adding to Opteron the ability to process data in 64-bit chunks, in addition to 32 bits, ahead of Intel. That has improved the performance of corporate networks and gave the AMD chips an edge since their introduction in April 2003. Intel's Xeon didn't add 64-bit capability until more than a year later.
"Dell is a customer-focused company and we're pleased to see that they are listening to their customers," said Marty Seyer, the head of AMD's commercial business division.
Both Dell and Intel missed their sales forecasts last quarter. Dell on Thursday said first-quarter sales rose 6.2 percent, the slowest growth rate in four years. The company said it would cut $3 billion in costs this year, in part changing the way it uses components.
Intel's Otellini told shareholders that the company's stock will struggle to regain losses that have knocked it down the ranks of the world's largest technology companies until new products planned for the third quarter begin to win back orders. |
