Dell Backs Opterons Further as Profits Plunge

Published: August 24, 2006

by Timothy Prickett Morgan

You can't exactly call it a running gag, because Advanced Micro Devices has only so many chips and Dell has only so many products, but in the last quarter, when Dell's financials were not so hot, Dell trotted out its long-anticipated deal with AMD to use Opterons in four-socket servers as a means of deflecting criticism and providing hope for investors. And last week, as it was announcing results for its fiscal 2007 second quarter, Dell announced an even broader agreement with AMD.

Now, Dell has committed to putting AMD chips in its Dimension desktop computers--presumably the Athlon desktop chips, but also possibly entry Opteron 1000 series chips and the AM2 socket--starting in September. Dell also said last week that it would broaden the use of Opteron processors, putting them into servers with two sockets as well as the four-socket boxes that it had already said it was working on. Many have suspected that Dell was ready to launch AMD-based PCs and servers for years, but because if its position as the last Intel-only tier one computer maker and the highest volume producer in the overall X86 and X64 market, Dell was able to get favorable treatment from Intel. (And there's nothing illegal about that.) But with Hewlett-Packard, Sun Microsystems, and IBM all stepping up their commitments to AMD chips, and making money from those systems, the pressure has really been on Dell.

Dell's sales in the quarter rose 5 percent to $14.1 billion, but net income fell by 51 percent to $502 million. These numbers do not take into account the costs of the massive recall of batteries Dell initiated last week, or whatever costs Dell might have due to an investigation launched by the Securities and Exchange Commission last week, which is examining the company's revenue recognition and accounting practices. No, last week was not a good one for Dell.

Dell said its overall enterprise revenue was up 11 percent in the fiscal second quarter ended August 4, driven in large part by a 36 percent increase in its storage sales, which hit $500 million. Server and networking equipment sales rose by a meager 1 percent to $1.4 billion. Services sales were $1.4 billion, up 21 percent, and software and peripheral sales were up 10 percent to $2.2 billion. PCs brought in $4.9 billion in sales, dropping 4 percent, but sales of mobile products (notebooks and PDAs) rose by 8 percent to $3.7 billion.