Dell to Use Advanced Micro Chips, Plans to Cut $3 Bln in Costs
2006-05-18 18:34 (New York)

By Connie Guglielmo and Ian King
     May 18 (Bloomberg) -- Dell Inc., the world's largest
personal-computer maker, accelerated a plan to cut $3 billion in
costs and said it will use processors from Advanced Micro Devices
Inc. for the first time, dealing a blow to Intel Corp.
     The decision to use Advanced Micro ends a 22-year exclusive
agreement with Intel, the world's largest semiconductor maker,
and will help Dell bolster profitability, which has flagged in
the face of stiffer competition from Hewlett-Packard Co.
     Dell Chief Executive Officer Kevin Rollins, who reported an
18 percent decline in first-quarter profit today, described the
decisions as ``bold moves'' that responded to increased
competition. The company is investing $100 million to improve
customer service, and said it will stop forecasting results.
     ``Dell is finally making some meaningful changes, which is
what investors have been looking for,'' said Tony Ursillo, who
helps manage $75 billion at Loomis, Sayles & Co. in Boston.
     Shares of Dell, down 20 percent this year, gained 62 cents, or
2.6 percent, in extended trading to $24.57 after the report.
Sunnyvale, California-based Advanced Micro shares jumped $4.15, or
13 percent, to $35.50. Santa Clara, California-based Intel shares
fell 93 cents, or 5 percent, to $17.72.
     Advanced Micro's Opteron microprocessors will be used in a
new line of server machines to go on sale by the end of the year,
Round Rock, Texas-based Dell said today in a statement.
     The deal gives Dell products that are winning favor with
customers, who have been turning to computers with Advanced Micro
technology made by Palo Alto, California-based Hewlett Packard,
the second-biggest PC maker, and Armonk, New York-based
International Business Machines Corp.

                          Advanced Micro

     For Advanced Micro, 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 isn't
using it microprocessors.
     Sales of servers, computers used to run corporate networks
and Web sites, rose 3 percent to $1.3 billion in the first
quarter, Dell said. They fell 7 percent from the fourth quarter.
     Dell began selling some gaming PCs with Advanced Micro chips
to consumers after the takeover in March of Alienware Corp.
     PCs, Dell's main moneymaker, accounted for 62 percent of
revenue in the first quarter. Notebook PC sales rose 12 percent
to $3.7 billion, while sales of desktop systems declined 3
percent to $5.1 billion.

                          First Quarter

     Dell's first-quarter net income fell to $762 million, or 33
cents a share, from $934 million, or 37 cents, a year ago, as
Rollins cut prices to win customers from Hewlett-Packard. Sales
rose 6.2 percent to $14.2 billion in the period ended May 5, the
slowest rate of growth in four years.
     The company said last week that profit fell below a February
forecast and sales were at the low end of expectations.
Additional price cuts will weigh on profit margins, Rollins said
today. The company doesn't plan to cut any jobs.
     ``We'll continue to see price aggression throughout the
year,'' Rollins said in an interview.
     Of 31 analysts tracked by Bloomberg, 17 recommend investors
buy Dell stock and 12 say hold. Two suggest selling. A year ago,
19 said buy, six said hold and one said sell.
     Dell began including stock-compensation costs in its
earnings in the first quarter. The company accelerated the
vesting of its stock options in January, reducing its stock-based
compensation expenses for fiscal 2007 to 10 cents a share from
the 18 cents previously expected.

                          Earnings Miss

     The misstep was the third in the past year as Rollins, 53,
struggles to achieve the growth delivered by his predecessor,
company founder Michael Dell. The company missed its sales
forecasts twice last year and in November backed away from a goal
of reaching $80 billion in sales by 2009.
     Revenue growth hasn't been less than 10 percent since the
first quarter of fiscal 2003, when sales grew less than 1
percent. Sales gains averaged 18 percent in the past three years
and first-quarter revenue jumped 16 percent to $13.4 billion a
year ago.
     Rollins said Dell had higher profit margins at a time when
rivals were cutting prices and building market share.
     ``Some of our competitors were a little stronger than we
thought,'' Rollins said on a conference call with reporters.
     ``We knew we had customer-service and product issues,'' he
told analysts on a later call. ``The greater issue was, were we
price-competitive and reacting to our competitors' improvements
in price positioning? We let it go on too long.''

                      Revived Hewlett-Packard

     In the calendar first quarter, Dell's worldwide PC market
share dropped to 18.1 percent in from 18.6 percent a year
earlier, according to market researcher IDC of Framingham,
Massachusetts. A revived Hewlett-Packard under new CEO Mark Hurd
boosted its share to 16.4 percent from 15.1 percent a year
earlier. Second-quarter profit rose 51 percent, Hewlett-Packard
said this week.
     Results this quarter will be similar to the first quarter,
Dell said, without giving details
     Goldman Sachs Group Inc.'s Laura Conigliaro expects second-
quarter profit of 34 cents on sales of $14.2 billion. Her second-
quarter profit estimate matches the average projection from
analysts in a Thomson Financial survey. On average they predict
sales of $14.3 billion.

     (For company conference calls, see {LIVE <GO>}. A replay of
Dell's conference call can be heard at
dell.com

--With reporting by Howard Liberman, Charles Stein and Dierdre
Bolton in New York. Editor: Palazzo.

Story illustration: See {DELL US <Equity> GP <GO>} for a graph of
Dell's stock price. For a chart of how Dell's profit compares
with analysts' estimates, see {DELL US <Equity> SURP <GO>}. For
sales by region, see {DELL US <Equity> DES 7 <GO>}.

To contact the reporter on this story:
Connie Guglielmo in San Francisco at (1) (415) 743-3582 or
cguglielmo1@bloomberg.net;
To contact the reporter on this story:
Ian King in San Francisco at (1) (415) 743-3548 or
ianking@bloomberg.net;

To contact the editor responsible for this story:
Emma Moody at (1)(212) 617-3504 or emoody@bloomberg.net.

[TAGINFO]
DELL US <EQUITY> CN
AMD US <EQUITY> CN
INTC US <EQUITY> CN

NI TEC
NI COS
NI ERN
NI CPR
NI TX
NI OFF
NI ELE
NI US
NI WARN
NI EST

#<561017.3732365.2005-11-10T14:40:00.25>#
-0- May/18/2006 22:34 GMT