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Dell's Opteron move roils X86 market

Posted: 29 May 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Dell? processor? AMD? Opteron? Rick Merritt?

Dell Computer Inc.'s move to AMD chips for its servers represents a major shift in strategy for the PC giant and a stunning blow for Intel Corp. One analyst said Dell's recent announcement changed the market for X86 CPUs "from a monopoly to a duopoly."

Servers based on Advanced Micro Devices Inc.'s Opteron line of 64bit processors are expected by year's end. Dell, which has primarily installed X86-based microprocessors from Intel since its inception, will continue to use Intel chips for most of its PC lines, analysts said.

For Dellwhich has been losing market share, especially in servers, to unexpectedly intense competitionthe recent move could be "just the beginning of a strategic shift," said Matthew Eastwood, an analyst with market watcher IDC.

"AMD has made a significant penetration into the four-socket market, and Dell finally realized that they needed to do something to compete," he said. Eastwood predicted Dell would "extend the support for Opteron processors into the two-processor rack-optimized market and potentially into blades."

AMD's design win is more significant symbolically than financially because Dell is expected to limit use of the Opteron chipsat least initially-to its four-way servers. Those machines represent a lucrative but relatively small (less than 15 percent) slice of the total X86 server market.

Nevertheless, said Nathan Brookwood, principal of market watcher Insight64, with this deal "the market dynamic has shifted from a monopoly to a duopoly" in X86 CPUs.

"This is much more significant in terms of AMD's reputation than it is for their finances," said Brookwood. "AMD is now a credible supplier of enterprise-class processors."

Dell has good reason to embrace AMD. For the first quarter, Dell reported profit down 18 percent, at $762 million, from the same quarter a year ago.

"The competitive environment has been more intense than we had planned for or understood," Dell CEO Kevin Rollins acknowledged in a statement. "Over the last year, we tried to achieve both growth and increased levels of profitability, which allowed our competitors to improve their relatively low levels of profitability and accelerate their growth."

Dell's competitors have been grabbing market share by developing systems based on AMD's successful Opteron line, analysts said. In fact, Dell's own sales force has been urging the company to adopt AMD's Opteron chips as a way to regain lost share.

Dell's adoption of AMD parts had been expected for months. In January, analyst Doug Freedman at American Technology Research Inc. predicted that Dell and AMD would make an announcement in March.

In the ensuing weeks, Dell dismissed the rumors, saying it had made no decision on whether to use AMD's processors.

Then, in March, Dell began to move toward AMD by agreeing to acquire Alienware Corp., which makes high-end PCs based on processors from both AMD and Intel.

Freedman characterized the proposed acquisition as a way for Dell to "back its way" into a relationship with AMD.

- Rick Merritt and Mark LaPedus
EE Times




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