Tuesday, November 29, 2005

DELL: it will take INTEL more time to catch up AMD

Dell Inc. – Jim Schnieder, CFO
Tuesday, November 29, 2005 8:00 a.m. Mountain Standard Time forward to 46:00

When asked about why DELL is not using AMD:

"INTEL has been very competitive in terms of pricing with us".

When asked what kind of hurt DELL is enduring because of AMD advantage, such as major accounts move away from DELL to HP (for Opteron):

"INTEL is catching back up, may be it will take a little bit more time."

"We maybe less profitable, certainly in the near term, if we had moved over"(to AMD).

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AMD has taken 38.2% of the 4 way server market in Q3 2005.

My anaylsis and suggestion to AMD:

Why would DELL be less profitable if goes AMD? INTEL will cut off bonuses.

At this point, AMD simply does not have money to lure DELL away from INTEL's gold pile, according to Paul Otellini, keepng DELL happy is INTEL's most important job, INTEL got 14 billions, AMD has only 1 billion. Even if AMD gave all its cash to DELL, it is not enough to keep DELL afloat. So AMD must give up any wishful thinking that DELL will use AMD in the near term. I expect AMD to win the lawsuit against INTEL and get a big pile of money out of that, maybe AMD can use the money to entice DELL then.

HP uses AMD and is doing very well because HP has deep pockets, somewhere around 40 billion of assets to do its own R&D. In comparsion, DELL has only 5 billon of assets. DELL's cash position is less than its bills to pay. So DELL is lving on the fringe, it can't survive if INTEL support is suddenly cutoff.

AMD's plan is therefore based on the assumption that it does not do business with DELL and let DELL sucking more life blood from INTEL, making INTEL and DELL more dependent of each other. Such a INTEL+DELL relationship will alienate other INTEL customers and make more willing to do business with AMD instead. Remember, DELL has only 16% of the world's PC market, and there is the 84% for AMD to capture.

1) Lower the price of Opteron for SUN to allow it to grab more DELL share, so there will be two major guys HP and SUN ganging up on the DELL dude.

2) DELL will suffer more losses and demand more price cuts from INTEL. INTEL will have to sell chips at even lower prices to DELL, creating a bigger price differential between DELL and HP's INTEL CPU costs, thus making HP more inclined to promote AMD in all segments, as it can't compete against DELL in the INTEL market.

3) The cycle continues, until at one point, HP will find it much more profitable by going 100% AMD.

4) The result is AMD,HP, SUN take the high end x86_64 market and INTEL, DELL take the low end. Of course, AMD must maintain a 30% performance lead over INTEL. Judging from the overclockability of AMD chips, AMD has a lot of room.

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