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Analyst: Dell likely to adopt AMD chips

Will switch from Intel-only and add AMD processors to PCs later this year, Piper Jaffray analyst predicts.

Stephen Shankland Former Principal Writer
Stephen Shankland worked at CNET from 1998 to 2024 and wrote about processors, digital photography, AI, quantum computing, computer science, materials science, supercomputers, drones, browsers, 3D printing, USB, and new computing technology in general. He has a soft spot in his heart for standards groups and I/O interfaces. His first big scoop was about radioactive cat poop.
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Stephen Shankland
2 min read
Dell likely will reverse course and begin selling computers with Advanced Micro Devices' processors, Piper Jaffray analyst Les Santiago predicted Tuesday, sending the chipmaker's stock up 5 percent in midday trading.

"We strongly believe that Dell will start AMD-based system shipments as early as (the second half of 2006)," Santiago wrote in a report. He based his view on conversations with unnamed sources in the PC component supply industry, press reports indicating Asian designers are working on AMD-based systems for Dell, AMD inventory shortages suggesting Dell is purchasing the chips and other factors.

At the moment, Dell uses Intel chips only. Chairman Michael Dell told reporters last week at the Consumer Electronics Show that adding AMD processors to the product line "is a distinct possibility."

Santiago also wrote in the report: "Our conversations further indicate that Dell's sales force is demanding Opteron-based server offerings to be able to better compete in the market."

Intel and AMD have been fierce rivals for years, but AMD has made strong gains in the server market at Intel's expense. AMD's Opteron caught on as a competitor to Intel's Xeon because of its lower power consumption, early support of 64-bit memory extensions and dual processing cores, built-in memory controller and high-speed connection to the rest of a system.

Santiago upgraded AMD stock from "market perform" to "outperform," estimating that a Dell deal will bring in $144 million in revenue and 12 cents earnings per share in the second half of 2006, and $597 million and 49 cents per share in 2007.

Dell's three main competitors in the server market--Hewlett-Packard, IBM and Sun Microsystems--all use Opteron in their servers. In addition, HP uses AMD chips in its PCs and laptops.

Dell has come close to using AMD chips in the past, but in 2005, CEO Kevin Rollins said he believed the company would stick with Intel.

Dell declined to comment on what it termed "rumor and speculation." "We're constantly evaluating technologies and providing customers with the technology they're requesting," said spokesman David Lord.

AMD's stock rose $1.68, or 5 percent, to $34.93 on Tuesday. Santiago raised his price target to $45.

Santiago believes manufacturing capacity from AMD's new Fab 36 plant will increase the confidence Dell and other computer makers have in the chipmaker.

Despite that, Intel has some formidable advantages. For example, it leads AMD in the transition to processors made with smaller, 65-nanometer circuitry features. Intel began its transition in October, but AMD won't begin its until the second half of 2006. The newer process lets Intel exert heavy price pressure on its competitors.

In November, Dell began selling individual AMD processors on its Web site.