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Dell's interest in AMD: old story with new twist

The perennial report comes at a time when both companies are at a turning point

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Every year around this time, the air gets chillier, the shopping malls get busier and Dell makes noise about possibly using AMD's processors in its PCs and servers. Or, at least it seems that way.

This time, however, the perennial report comes at a time when both companies are at a turning point. Dell is coming off two quarters of missed expectations, dragged down by the poor performance of its consumer business in the US and fielding more and more questions about the inferior performance of its servers. Two and a half years after the launch of the Opteron processor, AMD-based products can be found in server rooms throughout the Fortune 100 and outselling Intel on retail shelves throughout the country during some months this year.

Amid that backdrop, the Economic News Daily in Taipei reported Monday that Dell has told its manufacturing partners for desktops, notebooks and servers in Taiwan to get ready for a large order of AMD systems that will carry Dell's logo. It's likely that Dell is once again going through the charade of flirting with AMD in order to wring concessions from Intel, but the purported talks would represent a new level of interest in AMD if accurate, analysts said Monday.

A Dell spokeswoman in Asia dismissed the report as "rumour and speculation." A Dell spokesman in the US did not immediately return a call seeking comment, and an AMD spokeswoman declined to comment on the report.

Last November, Dell Chief Executive Officer Kevin Rollins told Techworld affiliate InfoWorld that the company was leaning toward releasing products based on AMD's chips. Rollins noted that AMD had an advantage in this market, and that his company would likely use AMD's chips at some point in the future.

But in February of this year, Rollins said that Dell's interest in AMD had waned with the disclosure of Intel's dual-core road map. Many observers, including AMD, believe that Dell floats AMD trial balloons every so often to gauge Intel's reaction at the prospect of losing its exclusivity with Dell.

"This is always a wonderful ploy for getting deals out of Intel," said Nathan Brookwood, principal analyst with Insight 64 in Saratoga, California. "Dell has made a lot of money over the years not buying AMD."

But given Dell's recent financial performance, the company might be losing sales to Opteron servers and Athlon 64 desktops from companies like HP. Throughout all of the years of Dell's flirtation with AMD, company executives have said that if Dell was losing sales because of its Intel-only position, it would have to switch to avoid hurting its businesses.

And Intel may be tiring of this game, said Kevin Krewell, editor-in-chief of The Microprocessor Report. Dell has reliably stayed true to Intel through the difficult past 12 months for the world's largest chip maker, and typically receives favourable pricing and distribution of new chips as a reward. Likewise, Dell's position as the PC market share leader allows Intel to get its technology in front of a wide cross-section of PC users.

This time around, however, Intel has a hot new partner in Apple with which it can distribute new technologies, Krewell said. Intel is preparing to launch one of its most significant chips since the launch of the Pentium M in 2003, a dual-core version of that chip code-named Yonah. Apple enthusiast site Think Secret reported last week that Apple plans to introduce a Yonah notebook in early January around the time Intel formally unveils the processor.

Although Apple's market share is far below Dell's, Apple has the relationships with recording studios and movie production companies that Intel covets, Krewell said.

The heads of both AMD and Dell have recently downplayed their chances of getting together. AMD Chairman, President and Chief Executive Officer Hector Ruiz told financial analysts last week that his company expects to gain market share in 2006, but that it expects to hit its targets with its existing complement of partners. "Our plans don't take in account Dell's management decisions, but we can handle Dell if we have that opportunity," he said in question-and-answer session after the analyst meeting.

At Gartner's Symposium/ITXpo last month, Dell Chairman Michael Dell told an audience that Intel was poised to take the performance-leadership crown back from AMD in 2006. "Intel takes a very definitive lead in performance and power management at 65 nanometres. If we thought AMD was going to be super-competitive in the spring and fall of next year, we'd be introducing AMD products right now," he said during the conference.


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