Dell Inc, which has used only Intel Corp processors until now, announced on Thursday that it would begin using a chip made by Advanced Micro Devices Inc (AMD), as part of a broader plan to improve its flagging sales and market share.
Dell said that by the end of the year, it would start using an AMD Opteron chip in one of its high-end servers with multiple processors.
"It's a fairly small category," Kevin Rollins, chief executive of Dell, said on a conference call with analysts.
He did not rule out using AMD chips in Dell's PCs or in other servers, but he said that Intel would remain the supplier of the "vast majority of processors we use." Rollins outlined several personal computer products that the company planned to introduce this year, and all of them will use Intel chips.
Rollins made the announcement after the company released its earnings for the first quarter. As the company said in a preliminary statement last week, net profit in its first quarter ended May 5 was US$762 million, or US$0.33 a share, down 18 percent from a year earlier.
Revenue grew 6 percent, to US$14.2 billion, from US$13.4 billion a year earlier, helped by overseas growth. In addition, the company said that revenue from printers increased 10 percent.
Dell, the world's largest seller of personal computers, had previously said growth suffered in the quarter as it cut prices to gain market share and spent more on improving customer service.
"The competitive environment has been more intense than we had planned for or understood," Rollins said.
Dell's news about the Opteron chip, made after the market closed, sent shares of AMD as much as 13 percent higher, after they had closed at US$31.35 in regular trading. Intel's shares, by contrast, were down almost 5 percent in after-hours trading after closing at US$18.65. Shares of Dell rose more than 4 percent after hours; the stock closed up 1.4 percent, at US$23.95, in regular trade.
Analysts on the conference call wondered why Dell had waited so long to add an AMD chip to its products. Rollins said the company had been watching the market to see what the customers of its servers wanted.
"AMD was very successful, so we are using it," he said.
Dell's chief rival, Hewlett-Packard, has offered AMD chips for a decade; they are used in more than 30 of its PC and server product lines.
Analysts say the AMD chips have given Hewlett's customers more choice over price and performance. Hewlett did not quite win bragging rights over Dell this earnings season, though. Dell's desktop PC sales grew 3 percent in the quarter, while Hewlett's grew 1 percent. But in laptops, the hottest growth category, Dell grew only 12 percent compared with Hewlett's 27 percent.
According to IDC, a market analysis firm, Dell's worldwide market share for PCs in the first three months of the year was 18.1 percent, down from 18.6 percent last year, while Hewlett's market share rose to 16.4 percent from 15.1 percent last year.
In terms of profits, though, Dell still has a clear edge. Its operating profit margin of 6.7 percent for PC's exceeds Hewlett's margin of 3.6 percent. Dell's margins used to be fatter -- they were 8.8 percent in the year-ago period -- but it still has a distinct pricing advantage over its competitors. Rollins said that accelerated cost cutting would help improve margins.
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