This column was originally published on RealMoney on May 25 at 10:07 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.
Hell hath officially frozen over. For years,
have been joined at the hip like Al and Peggy Bundy in an unholy union of second-rate chips and third-rate customer service.
But last week, Dell did the previously unthinkable, announcing that it will use Opteron chips from
in some of its high-end multiprocessor servers by the end of the year.
This is a positive first step for the struggling computer maker. Given the planned release of Microsoft's Windows Vista operating system in early 2007, I believe Dell's management team will bite the bullet this year and put AMD chips in its desktops and notebooks as well.
For those who haven't followed the AMD/Intel saga, AMD's Opteron chips have been taking an enormous amount of share in the server market from Intel, due to Opteron's superior performance and heat/energy efficiency metrics.
In an arrogant yet savvy marketing campaign, AMD went so far as to issue a "dual core challenge" to Intel, proposing that the two companies' high-end server chips publicly battle it out to see which delivered better performance. Some of Intel's upcoming server chips have a solid buzz about them, but in the meantime, AMD is all the rage.
AMD has also made considerable strides on the desktop, particularly on the high end, delivering chips that outperform Intel's while displaying superior heat- and energy-efficiency metrics.
Rahul Sood, president of high-end gaming PC maker
, recently commented on a conference call with Prudential that his company's sales mix on the desktop is currently almost 100% AMD. This is important because a VoodooPC, with its $5,000-plus average price tag, is the absolute cutting edge of desktop computers, and the technology VoodooPC users demand eventually trickles down to the mainstream.
Given these two trends, Dell shareholders have arguably suffered from Dell's Intel-only policy. Perhaps Dell is taking baby steps away from Intel, not wanting to inflict too much damage on the chip giant or damage relations between the two companies. But I believe Dell will eventually do what's best for its shareholders.
The planned first-quarter 2007 release of the consumer version of
Windows Vista operating system provides Dell with a powerful incentive to add AMD-powered PCs to its lineup.
The new OS could spark an upswing in PC sales, and Dell should be offering consumers as much choice as possible. With consumers catching onto the fact that AMD's desktop chips are often superior to Intel's from a price and performance perspective, the risk of not offering AMD desktops ahead of the Vista rollout is enormous.
The same applies to notebooks: Intel's notebook offerings have been better than AMD's, but what if that changes with the rollout of AMD's next generation of notebook chips?
Of course, Intel could come out with superior product offerings on the desktop and maintain its product leadership in notebooks ahead of the Vista rollout. However, consumers would likely be slow to catch on, as they were with the emergence of AMD's product superiority, and could actually demand AMD-powered PCs even if Intel-powered models were superior. Why would Dell's management want to take that risk?
As for the stock market implications, AMD is a buy. The company has clear technological leadership, and I believe Dell has no choice but to expand its relationship with the chipmaker ahead of the release of Vista in 2007.
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In keeping with TSC's editorial policy, Michael Comeau doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Comeau is a research analyst at TheStreet.com. In this role he performs stock analysis for
, and is also a regular contributor to RealMoney.com. Prior to his arrival at TSC in June 2004, Comeau worked as a Consultant to Toyota Motor North America, performing in-depth research on automotive industry issues, primarily in the areas of alternative engine technologies, competitive analysis and macroeconomics. His primary market interests include consumer technology, specialty retail, and small-caps. Comeau received a bachelor's degree in Finance from Brooklyn College, and has completed Level 1 of the CFA program.. He appreciates your feedback;
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