Rumors Swirl Around Potential Dell-AMD Deal

Solution providers lamented a possible loss of margin that could come if Dell begins building systems based on chips from Advanced Micro Devices.

Paul Giobbi, president of Zumasys, Lake Forest, Calif., which recently began selling branded servers with AMD CPUs without the “typical pricing pressures,” wasn’t relishing the idea of going up against Dell.

“They could commoditize the hell out of them and make them a lot less fun to sell,” Giobbi said.

Last week, an industry analyst at Piper Jaffray suggested that Dell would be using AMD CPUs as early as the second half of 2006. The prediction is based on conversations with PC component suppliers, press reports of Asian manufacturers working on AMD designs for Dell and AMD’s recent confirmation of chip shortages.

Just a week prior, Dell Chairman Michael Dell gave perhaps the strongest indication yet that he would consider using Sunnyvale, Calif.-based AMD’s processors. Earlier this month at the International Consumer Electronics Show in Las Vegas, Dell said it was “a distinct possibility” that his company would consider using AMD processors. In the past, Dell has rebuffed the notion of using non-Intel processors.Many solution providers have been using systems with AMD CPUs—particularly servers with its well-received dual-core parts—as a way to differentiate themselves from Dell, which deeply discounts its Intel-based systems.

For solution providers, the biggest concern was maintaining margins on AMD systems.

Larry Piland, president of Datel Systems, Kearny Mesa, Calif., said Dell’s potential entrance in a space where system builders play unfettered could be a problem for those that differentiated themselves with AMD. “It’s going to hurt some people,” he said.

But he also noted that it could help Datel break into the corporate space with AMD, where previously, Datel has had trouble with AMD products.

“AMD has small penetration in the corporate and education markets. If Dell does it, it will legitimize AMD as a corporate platform,” he said.Solution providers have long charged that Dell, Round Rock, Texas, has enjoyed aggressive discounts from Intel, Santa Clara, Calif., because of the exclusive relationship in addition to its massive purchasing power.

The industry is closely watching Dell’s moves because AMD has picked up significant market share in dual-core servers, where its chips are considered faster and more power efficient than the competing options from Intel.

But some industry watchers charge that Dell is simply using the rumors to help keep the reins tight in Intel negotiations and actually has no intention of using AMD this year.