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Dell's Decision to Use Advanced Micro Chips Is Blow to Intel

May 19 (Bloomberg) -- Dell Inc.'s decision to end its 22- year exclusive use of Intel Corp. computer chips marks the biggest victory for Advanced Micro Devices Inc. in its battle to take market share from the world's largest chipmaker.

Shares of Advanced Micro surged after Dell, the world's largest personal-computer maker, yesterday said it will use Sunnyvale, California-based Advanced Micro's Opteron processor in some server machines. Intel slumped.

For Advanced Micro, which topped 20 percent of the market for chips that run servers for the first time ever last quarter, the agreement is a foothold in the only major PC maker that wasn't using its microprocessors. The switch is a setback for Intel Chief Executive Officer Paul Otellini, who is already under pressure to stem a slide in profit and market share.

``Advanced Micro looks like a better-run company right now,'' said Jim Benham, a fund manager at Benham & Green Capital Management in La Jolla, California. His firm oversees $100 million and recently sold its Intel shares. ``Intel has dropped the ball.''

Advanced Micro rose $3.94, or 13 percent, to $35.29 in U.S. extended trading after the announcement. Shares of Santa Clara, California-based Intel, the worst performer in the Dow Jones Industrial Average this year, fell 92 cents, or 4.9 percent, to $17.73. The shares have declined 25 percent this year.

High End

Advanced Micro Chief Executive Officer Hector Ruiz has transformed the company from an also-ran that offered low prices on desktop computer makers, to one that leapfrogged Intel in technology to gain share in server computers, which run corporate networks and Web sites, along with desktop and notebook machines.

As Intel's only major competitor, Advanced Micro won 22 percent of shipments for the most common type of server chips in the first quarter, up from 16 percent in the fourth period, Mercury Research analyst Dean McCarron said on April 25. Dell will use Opteron chips in server machines that need more than one processor.

``There was clear acceptance'' for AMD in high-end markets, Michael Dell, chairman and founder of the Round Rock, Texas-based company, said on a conference call with analysts. ``AMD was very successful.''

Dell's acceptance could help Advanced Micro break Intel's stranglehold on sales of desktop computers used in company offices.

``If Dell starts using AMD processors in some of the PCs and lets AMD break into the enterprise PC market in a bigger way, it's very significant,'' said Jim McGregor, an analyst at Scottsdale, Arizona-based In-Stat.

Corporate Market

Advanced Micro's Ruiz wooed customers by adding to Opteron the ability to process data in 64-bit chunks in addition to 32 bits, ahead of Intel. That has improved the performance of corporate networks and gave Advanced Micro chips an edge since its introduction in April 2003. Intel's Xeon didn't add 64-bit capability until more than a year later.

``Dell is a customer-focused company and we're pleased to see that they are listening to their customers,'' said Marty Seyer, the head of Advanced Micro's commercial business division.

Both Dell and Intel missed their sales forecasts last quarter. Dell yesterday said first-quarter sales rose 6.2 percent, the slowest growth rate in four years. The company said it will cut $3 billion in costs this year, in part changing the way it uses components.

Intel's Otellini told shareholders earlier this week that the company's stock will struggle to regain losses that have knocked it down the ranks of the world's largest technology companies until new products he has planned for the third quarter begin to win back orders.

Road Ahead

``We appreciate Dell showing strong support for the bulk of our product offering and the strength of our road map,'' said Scott McLaughlin, a spokesman for Santa Clara, California-based Intel. ``This is a very competitive industry. We work hard to win every piece of the business.''

Yesterday's decision may help computer makers reclaim some control of their products after relying on Intel too heavily, said Jennifer Paperman, a spokeswoman for Palo Alto, California- based Hewlett-Packard Co., Dell's largest competitor. Hewlett- Packard has been using Advanced Micro chips since 1996.

``Customers will benefit from competition and increased choice,'' Paperman said. ``And the industry will benefit as the focus shifts from component makers back to the value provided by integrated system providers.''

Mountain View (CA) - Dell and Google apparently have reached an agreement to ship PCs that come with a standard installation of a Google software package. According to media reports, the cooperation will be only the first in a series of deals.

The rumor of the Google PC has been making its rounds in Internet forums for several years. So far, we have not seen those speculations to transition into a real product and even Google executives typically take question about such a device with humor: "Is there a rumor?" said, for example, co-founder Larry Page at the Consumer Electronics Show in January of this year. On a more serious note, spokespeople told TG Daily back then that those rumors were "an idea out of the blue sky."

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In any case, a standard Google installation on Dell computers represents yet another challenge for Microsoft to gain dround on Google's dominance in the search market and may weaken the firm's strategy to attract users through a richer serach capability in Windows Vista.