Will Dell Really Embrace AMD This Time?

Rumors that Dell will soon offer AMD products are flying again. This time, they have credibility. It would cheer AMD fans and shareholders if Dell finally opened its doors to AMD. But how much would it matter to server builders and managers?

According to Gartner Dataquest, Dell's share of server market unit sales rose to 21.1 percent in the third quarter of 2004, a 25 percent increase over 2003 that put Dell in second place behind HP's 28.5 percent. IBM placed third in units shipped with 16.1 percent and Sun was a distant fourth at 4.6 percent. Revenue-wise, Dell gained 17 percent on $1.16 billion in server sales, about 10 percent of total server revenues. Clearly, Dell is not making its gains in the high end of the server market, where AMD's Opteron has been going.

AMD garnered 8 percent of the x86 server market in Q3 2004, up from 6.9 percent in Q2, according to IDC. Opteron accounts for most of those gains, and IDC analyst John Humphreys says, "Opteron is largely selling into corporate, government and industrial market segments with a need for high-performance systems — hence over 60 percent of AMD's volumes are tied to Linux server deployments."

That trend will change only partially when Microsoft releases the 64-bit version of Windows Server 2003, which is expected in March. So far, customers who are interested in Windows 64-bit servers seem partial to Intel's EM64T Xeon chip, which shipped over 60,000 units in Q3 2004.

"EM64T is shipping overwhelmingly with Windows and is being deployed largely in existing 32-bit environments," says Humphreys.Dell's customers aren't begging for AMD-based 64-bit servers in numbers sufficient to persuade Dell to offer them. AMD will have to rely upon another wedge to open Dell's doors.

AMD aims to beat Intel to market with a dual-core 64-bit processor in the middle of this year. Intel isn't expected to have a similar product until the first quarter of 2006. That gives AMD a window of roughly 6 months, through which a little ray of Microsoft sunshine falls upon the chip maker. Dual-core processors will be treated as single chips in Microsoft's pricing schemes, Redmond announced in October.

The opportunity to buy a 4-processor server license and run it on 8 cores is pretty attractive. It sweetens Microsoft's July offer to let customers move from 32-bit to 64-bit Windows Server 2003 at no charge. The combination aims right at the large 2-way Microsoft server market, which Dell can't afford to leave to HP, IBM, Sun, and other competitors.

"Even I can do this math," says Scott Neuman, CEO of AOS Web-com, which builds and hosts servers for small to medium commercial enterprises. "When AMD can turn a 2-way chip into a 4-way and it costs me nothing to move up to 64-bit, I'm there. Dell can have my business if it wants it."

"As customers become aware that next-generation software will generally 'require' 64-bit systems, we believe that demand will steadily increase," analyst Mark Stahlman of research firm Caris & Co. wrote in a note last fall. "Dell will remedy this situation and probably begin selling AMD-based products sometime in the first half of 2005."0