Dell Warns Intel with Talk of AMD Inside

Dell (Nasdaq: DELL) CEO Kevin Rollins sent a clear signal to Intel (Nasdaq: INTC), saying in an interview that the company is likely to begin using Advanced Micro Devices (NYSE: AMD) (AMD) processors in some of its products. Dell is the last holdout among PC and server makers not to use the Intel competitor's chips.

"They've been getting better and better. The technology is better. In some areas they're now in the lead on Intel. That is what is interesting us more than anything," Rollin said.

Been There Before

Analyst and TechNewsWorld columnist Rob Enderle said that Dell and Intel have danced this dance before, only this time the tune has changed.

"Historically Dell has done this because they aren't getting the response they want from Intel and then Intel steps up and Dell doesn't make the move," he said.

"However, in recent months, Intel has had severe execution problems while AMD appears to be executing very well. Dell is signaling that if Intel doesn't get its act together, Dell, like Gateway and HP (NYSE: HPQ), will hedge its bets with AMD."

Price-Performance

According to Gartner (NYSE: IT) analyst Martin Reynolds, "Dell has a long record as an Intel-only supplier. To consider AMD means they are facing customer demands for the AMD product. AMD's products threaten Intel's high-margin Xeon products. Intel will have to move its products ahead of AMD in terms of price-performance to drive AMD out, which suggests that we will see an aggressive technology race in small servers."

Reynolds added, "Consumers are a way away from needing 64-bit technology. We'll need 4 GB memory configurations and a 64-bit desktop operating system first, which puts the date between 2006 for starting and 2009 for almost all new systems.

"The advantage comes not form 64-bit technology, but the price-performance of the Opteron processor in one- to four-way servers," Reynolds said. "This advantage comes from the high-bandwidth architecture of the Opteron system, which is several times greater than that of Intel's Xeon products."

Safety First

With 64-bit architecture looking more and more like a safe bet for the future, Dell has to consider which company can provide it with the best 64-bit chips. AMD beat Intel to market in 2003 with its 64-bit Opteron for servers and 64-bit Athlon64 for desktops.

"Right now AMD has a full 64-bit line (including desktop and mobile parts) while Intel doesn't, and 64-bit appears to be the future in a market trying to avoid premature obsolescence," Enderle said.

One big draw of 64-bit computing, aside from its ability to process twice as many bits in the same cycle, is added security.

"The 32-bit processors generally lack the head room to run the Data Execution Protection -- DEP -- bit that XP SP2 requires to block the nastiest class of viruses," he said. "Buyers are seeing the need for that security feature now and anticipating the need for 64-bit technology in the future. Intel is trying to respond, but the clock is ticking and they don't have unlimited time."

Rollins said Dell would not be looking at AMD chips for desktops because the company's compute power is lacking, but he said AMD's processors are attractive for gaming, servers and workstations.