Analysts: Dell Likely to Use AMD Chips in Desktop PCs

SAN FRANCISCO – Dell Inc. (DELL), the world's largest personal computer maker, is expected to offer a desktop PC using a microprocessor from Advanced Micro Devices Inc.(AMD) in September, Citigroup Inc. (C) analysts said on Tuesday.

Citigroup analyst Glen Yeung told Reuters that he and colleagues were basing this on information from PC component makers in Asia.

"We have analysts in Asia now who are continuing this conversation" with the component makers, Yeung said, elaborating on a research note he wrote that was published on Tuesday.

Dell spokesman Jess Blackburn declined to comment on the note. Yeung said details of the desktop computer's configuration were not available.

Installing AMD chips in desktop computers would be a further step in Dell's budding relationship with Advanced Micro Devices. Dell for 22 years exclusively used processors from chipmaker Intel Corp. (INTC)

Dell, of Round Rock, Texas, last month broke with tradition and said it would start using AMD Opteron chips in some high-end server computers by the end of this year.

Earlier this month, AMD of Sunnyvale, Calif., indicated that it expected its chips to make their way into more Dell products.

"I have yet to see a partnership we have in which that one entry point doesn't expand into multiple products," said Marty Seyer, vice president of AMD's commercial business.

Dell in March agreed to buy privately held Alienware Corp., a maker of high-end computers for video game enthusiasts.

Dell may now be getting ready to offer AMD chips in lower-end desktops as AMD processors are available in some Alienware PCs and soon will be in Dell servers, Yeung said.

"In terms of positioning, the low end would be a reasonable assumption," Yeung said.

AMD has been gaining market share at Intel's expense, and the deal with Dell signaled a shift in the highly competitive chip market. Intel is still the world's largest chipmaker, making about 80 percent of processors in personal computers.

Intel has cut prices in recent months as it clears inventories before introducing new chip models later this year. Such price cuts as well as the introduction of faster, more efficient processors could help Intel regain market share, analysts said.

"If Intel meaningfully lowers its processor pricing, AMD may be forced to respond in kind to maintain market share, thereby creating pressure on the company's profitability," Yeung wrote in the research note.

Yeung added that Intel may gain market share in corporate server computers, citing feedback from "several sources."

Last week, Yeung wrote in a research note, citing talks with Intel customers, that prices of Intel Pentium processors could fall between 8 percent and 61 percent by late July.

An Intel spokesman later said the company was accelerating price cuts in advance of new Intel processors promising greater power and more efficiency.

Shares of Intel closed up 1.5 percent at $17.12 on the Nasdaq on Tuesday, while AMD, up 46 percent from a year ago, finished down 4.8 percent at $24.44 on the New York Stock Exchange. Dell closed up less than 1 percent on the Nasdaq at $25.10.