The PC maker made the move public in its first-quarter earnings press release on Thursday. Speculation has mounted for years as to whether Dell would adopt the company's chips, despite Dell's exclusive relationship with rival Intel to this point. AMD has enjoyed a performance lead in server benchmarks over Intel's Xeon processors.
"We welcome Dell, and Dell customers, to the world of AMD64," Marty Seyer, an AMD senior vice president for commercial business, said in a statement distributed after Dell's earnings release. Dell executives delayed the start of an earnings call with the press and were unavailable to comment further.
Although the deal is confined to servers at this point, it still represents another win for AMD, which has had a long string of gains over its rival.
Dell's decision to abandon its longstanding all-Intel policy comes amid less-than-stellar earnings for the first quarter. The results were in line with the warning the company provided last week. Revenue was US$14.2 billion, up 6 percent from last year, but net income slid 18 percent to US$762 million. Dell said it's no longer giving specific quarterly financial guidance, though it did say the second quarter should be similar to the first.
Dell said on Thursday it was accelerating its plans for US$3 billion in cost cuts and will spend US$100 million on improving its customer service. The cost cuts will come from improving the efficiency of its support and manufacturing processes, Rollins said on the conference call. "We'll have the flexibility to price more effectively," he said. There will not be any job cuts, he said.
On a conference call following the earnings release, CEO Kevin Rollins said that Dell will only sell AMD processors in servers with four processors -- a relatively small category of the server market. There are no plans to sell AMD's chips in desktop PCs, notebooks or other servers at this time, he said.
"Our customers expressed a desire for that technology," Rollins said, referring to Opteron. "We will still be launching this year a broad base of Intel products."
Two-way servers -- a much larger segment of the server market -- are expected from Dell based on Intel's Dempsey processor in the coming weeks, and Intel has accelerated the launch of its Woodcrest processor for that two-way category to June.
Company founder Michael Dell admitted the company'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 Monday. "We didn't recognise how competitive the market was going to be."
Several times during the last few years, Dell CEO Kevin 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 Hewlett-Packard, Sun Microsystems and IBM were shipping dual-core versions of the Opteron processor, and Dell could offer only single-core Xeon processors.
Rollins said the decision was not related to the antitrust lawsuit AMD filed against Intel last year, in which AMD charged that Intel uses selective pricing schemes designed to provide incentives for its customers to exclude AMD from certain accounts, such as Dell. Intel has denied the charges, and Rollins said he doesn't expect Intel to penalise Dell for adopting AMD.
"Intel has been a great partner, and is going to stay a great partner. They are still going to (provide) the vast majority of our processors," Rollins said.
"We appreciate that Dell shows strong support for the bulk of our product offerings and belief in the strength of our roadmap," Intel spokesman Scott McLaughlin said in a statement. "The (four-way) niche has been a challenging one but our next-generation Intel Xeon processor MP (Tulsa), shipping in the second half of 2006, will provide a competitive product."
Mercury Research analyst Dean McCarron said that a lack of AMD-based systems has hurt Dell in the server business, which, though a fairly small unit market, accounts for a disproportionate share of PC industry profits.
"They've been feeling a lot of competition from Opteron products from the other Tier 1 players," McCarron said, pointing specifically to IBM, HP and Sun.
"Presumably it got to the point where Dell had to decide what mattered more -- loyalty or trying to deal with the competition," he said.
While late to the market, McCarron said, Dell could still nab a piece of the Opteron server pie.
"This is a very competitive business," McCarron said. "The fact that they have lost market share doesn't mean that they can't regain it."
Meanwhile, Dell said in a filing with the Securities and Exchange Commission that it plans to sell up to US$1 billion short-term unsecured notes, known as commercial paper.
