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Can AMD execute on Dell deal? |
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May 19, 2006 at 10:25 AM |
The surprise of the week, perhaps this month has been the little mention during Dell's quarterly financial conference call that it would be building four-way servers at the end of the year using Opteron chips from AMD. This of course is the first time Dell will directly purchase from AMD.
Yes it is a surprise because so many rumors have been around for over two years now yet nothing actually materialized. What also makes it surprising is that none of the rumors I have heard (lots actually) were specific to four-way servers.
The hundreds of news stories posted late last night all focused on what I have reviewed in the first paragraph and yet there is a story here that would seem to be missing but an important one nonetheless.
With Dell being big and AMD being small a long standing problem for Dell was AMD's supply constrained single fab operations. No point in marketing something yet unable to supply it!
A key aspect of the new deal is that Dell will start marketing these servers by the end of year, but why that long? AMD has been working with Dell so that they could evaluate its chips for more than a year.
It is also very well known that Intel has new chips surfacing in the 2H06 period that Dell will be buying in large quantities. Dell may be hoping that although conceding its customers want AMD chips in servers, they may be interested in new Intel chips as well, just at a time when both can be compared!
It should also be noted that four-way servers are a very small market in comparison to desktops etc... and have little impact on both AMD's and Intel's financial position. The win for AMD is actually more psychological than financial.
But there is also the issue of supply. It is well known that AMD's Fab 30 is at full capacity and the ramp of Fab36 is still at an early stage. However, AMD will have ramped considerably at Fab36 by year end and would also be getting chips from Chartered as demand dictates by that time also. With a three fab supply capability, supply doubts should in theory not be an issue for Dell.
The big hope as seen with the share price reactions of both Intel and AMD yesterday is that AMD has finally got its foot in the door at Dell and with perfect execution on the deal done AMD could get business in the future for desktops etc... that would see an impact on its financials. Considering how long it has taken AMD to open the door at Dell don't hold your breath for further surprises.
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