Dell is extending its relationship with Advanced Micro Devices by launching Dimension desktop computers with AMD processors in September and introducing a two-socket and multiprocessor server using AMD Opteron processors by the end of the year.
Until now, Dell has looked solely to Intel to supply its chips. The company surprised the industry in May by revealing it will begin selling two-processor servers with AMD chips by the end of 2006, a move predicted by analysts earlier in the year. Now Dell will extend that product family to include four-processor servers and Dimension desktop PCs.
"Customers want certain price, performance, and heating characteristics that aren't possible with the Intel chips. Dell has always been very customer-responsive and sometimes that goes beyond exclusivity," said Rick Doherty, an analyst with The Envisioneering Group.
The move to AMD could have drawbacks, too, analysts warn. Accustomed to Intel, Dell will have to hire or train its engineers to design PCs with the new chip technology, and that could cause a "hiccup" in some product development plans, Doherty said.
Even if Dell's foray into AMD-powered servers is successful, it would have a limited effect on the company's earnings. Server sales accounted for just 9 percent of Dell's revenue this quarter, compared to 35 percent for desktops and 26 percent for laptops.
The remaining revenue came from software (16 percent), services (10 percent) and storage (4 percent).
Dell officials blamed the company's strategy of cutting prices in a slow market for a profit of just $502 million in the second quarter, 51 percent below the same period last year.
The company also revealed it is being investigated by the U.S. Securities and Exchange Commission (SEC) for issues of revenue recognition and financial reporting in certain periods prior to fiscal year 2006.
In the face of these results, Dell executives promised change for the next quarter.
"In the future we will be more circumspect about pricing," said Kevin Rollins, Dell CEO.
Company chairman Michael Dell went even further, saying, "We are exploring all sorts of ways to accelerate new releases and cost improvements."
Neither man would add any details about the SEC investigation.
The news of Dell's embrace of AMD would usually attract flocks of happy investors to the company. But Dell has had an epically bad quarter.
On Monday, Dell announced it would recall 4.1 million laptop batteries after a series of failures led to the lithium ion cells overheating and even catching fire.
After missing its earnings target in May, Dell had hustled to turn its results around by spending $100 million to improve customer service by hiring new call center employees, beefing up service packages, and simplifying cost structures.
But in July, Dell offered a rebate to customers in China who had received the wrong processor in their laptops, a cheaper version of Intel's Core Duo chip than they had been promised.
Then on Wednesday, PC-selling rival Hewlett-Packard announced strong earnings, casting doubt on Dell's excuse of a soft market. The results could also push HP to draw even closer to Dell's number-one position in the market.