Analyst: Dell + AMD = more harm than good
- Shankland covered the tech industry for more than 25 years and was a science writer for five years before that. He has deep expertise in microprocessors, digital photography, computer hardware and software, internet standards, web technology, and more.
Dell would gain market share over rivals if it adopted Advanced Micro Devices' processors, but changes in its relationship with Intel would likely more than nullify the business merits of the move, an analyst said Monday.
"Overall, it seems unlikely that Dell's share gains would be enough to offset the potential loss of Intel marketing monies," Sanford C. Bernstein analyst Toni Sacconaghi said in a report addressing the recent opinions that Dell would embrace AMD.
Adopting AMD could win Dell 1 to 2 percentage points of server market share and 0.5 to 1 percentage points of desktop share, Sacconaghi calculated. These gains would lead to about $250 million to $350 million in new operating profit, but it's not clear whether that "would be enough to offset the potential loss of Intel marketing monies that Dell derives from being Intel-exclusive," Sacconaghi added.
Dell stands to gain from the situation--and Intel stands to lose. "The growing strength of AMD puts Dell in a favorable bargaining position with Intel, in our view. Even if Dell does not move to adopt AMD, it is likely to continue to use them as a leverage point to gain further concessions from Intel. Intel seems likely to lose revenue and/or margin, either because Dell defects or because it is forced to offer incremental concessions to Dell to maintain their loyalty," Sacconaghi said.
Dell's rivals are pushing AMD chips for PCs because customers have accepted the chip there and profit margins are better than with Intel chips, Sacconaghi said. Specifically, he estimated that operating margins increase 1 to 2 percentage points, a huge difference in a business with typical margins between 0 and 3 percent.
In contrast, customer pull is boosting AMD in the server market because of "AMD's superior memory and performance characteristics of its 64-bit architecture," he said.
For both PCs and servers, Dell's "lack of an AMD offering does appear to at least in part be an explanation of Dell's weak share performance at the high end of both of these markets," he said.