Analyst predicts Dell Opteron servers in 2006

Piper Jaffray's Les Santiago reports that servers likely to appear as early as the second half of this year.

A financial analyst issued a report Tuesday predicting that Dell will once and for all drop its exclusive use of Intel chips in 2006 and introduce servers based on Advanced Micro Devices' Opteron processors.

Now that Apple Computer and Intel have cemented their relationship, the rumor mills have turned back to the Dell-Intel-AMD love triangle in recent months. Taiwan's Economic News Daily reported last November that Dell is planning to build AMD products with its manufacturing partners on the island, and other reports have suggested that distributors are having a tough time finding AMD's chips in the channel.

Piper Jaffray's Les Santiago joined the Dell-AMD crowd Tuesday with a report based partly "on conversations with our sources in the PC supply chain" that Opteron servers bearing Dell's brand are expected to appear as early as the second half of this year.

Ever since AMD's Opteron came onto the market, Dell has scrambled to explain why it has continued to exclude AMD's chips from its portfolio despite the performance advantage of the Opteron over Intel's Xeon. Most often, Dell tells reporters and analysts that its customers aren't really asking for the Opteron products, and that if Dell were to switch, it would incur product development and support costs that would hurt its low-cost operating model.

But other companies, such as Hewlett-Packard, have embraced Opteron. One oft-heard reason for Dell's stance is the widespread industry belief that Dell receives preferential treatment, such as early product introductions and discounts on chip purchases, for remaining loyal to Intel. Those allegations are part of an antitrust lawsuit filed by AMD against Intel last year that claimed Intel rewards its customers with selective rebates if they buy fewer AMD chips. Intel has denied those charges.

Many analysts also believe that in order to maintain that preferential treatment, Dell occasionally floats suggestions within the media and analyst community that it is thinking about switching to AMD's chips. The theory is that Dell extracts concessions from Intel by threatening to end its loyalty. Competition between the companies on server chips has only grown more intense since both companies introduced dual-core processors.

Dell has always said that if it were losing business to Opteron servers from its server competitors, it would have to make a switch to stay competitive. But company Chairman Michael Dell told IT users at Gartner Inc.'s Symposium IT/Xpo in Orlando last October that he believed Intel's 2006 road map would tip the competitive balance back in Intel's favor.

Piper Jaffray disagreed in its report. "We believe that Intel's lead in [the] 65nm transition should provide it a limited performance boost given the limitation of its current processor architecture," Santiago wrote in the report.

Therefore, Dell will have to offer at least some Opteron-based servers this year, Santiago wrote. If the company is going to offer AMD's server chips, it might as well introduce desktops and notebooks based on its Athlon 64 and Turion processors, he wrote.

Spokesmen from Dell and AMD did not immediately return calls seeking comment. In the disclosure form at the end of its report, the analyst company wrote, "Piper Jaffray was making a market in the securities of Advanced Micro Devices Inc. at the time this research report was published. Piper Jaffray will buy and sell Advanced Micro Devices Inc. securities on a principal basis."

Copyright © 2006 IDG Communications, Inc.

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