Everybody expected

Dell

(DELL) - Get Report

to eventually adopt

Advanced MicroDevices

(AMD) - Get Report

chips. But when thecompany announced after Thursday's close that it was finally making the move, it marked a turning point for the tech industry.

As the world's No.1 PC maker abandoned itsstrategy of relying solely on

Intel

(INTC) - Get Report

microprocessors, it seemed clear tosome analysts and investors that the rules of the gamehad been forever changed.

"We believe the Dell announcement supports ourthesis that the MPU market is experiencing aninflection point from a market dominated by Intel with90% share, to a true duopoly, where the naturalequilibrium is something closer to a 60/40 split,"wrote Prudential analyst Mark Lipacis in a note toinvestors. "In this context, we think AMD has $3 - $5of EPS power." Prudential makes a market in Intelshares.

While AMD has been gaining market share forseveral quarters thanks to the popularity of itsOpteron microprocessor, getting Dell as a customer putaside any doubts that the smaller chipmaker has made it to themajor leagues, -- or that its success has been atemporary fluke.

AMD's shares responded accordingly, surging 10.5%,or $3.31, to $34.66 in Friday trading, whileIntel's stock set a new 52-week low, dipping to$17.94, down more than 3.5% at one point.

Dell shares also got a boost from the company'sacknowledgement that it needed to do thingsdifferently. Its shares initially rose 3% Fridaymorning, moderating to a 1% gain, or 23 cents, at$24.18, later in the day.

But Dell's turnaround plan didn't rehabilitateits image among Wall Street analysts. Credit SuisseFirst Boston and Needham & Co. each hit the PC makerwith downgrades of its shares.

And while the introduction of a Dell server with anAMD processors signifies a sea change in Dell'sstrategy, its near-term impact on Dell's finances willbe negligible.

Dell stressed that it was using only AMD chips inits four-processor servers, a niche that according toBernstein & Co. analyst Toni Sacconaghi accounts for amere 1% of Dell's overall revenue.

Whether AMD chips could eventually spread to otherparts of Dell's product line, particularly desktopsand notebooks, remains to be seen. But few expect anysuch changes in the next couple of quarters.

"Dell's struggles over the last few quarters haveresulted in it being a show-me stock, and we do notforesee material appreciation in Dell until thecompany can demonstrate that its action plan is takinghold," wrote Sacconaghi, who has a $36 price targetfor the stock. Bernstein makes a market in shares ofDell.

The company's management set about explaining thelogic behind the price-cutting strategy that's at theheart of its plan to reignite growth, duringThursday's conference call with analysts.

"We believe our growth has slowed because we keptmargins too high. We need to accelerate growth and webelieve that price is one way to do that," said Dell CEO KevinRollins, citing the company's two decades of experience in tinkering with price elasticity -- the pointat which a drop in prices yields a correspondingpickup in demand -- in the PC market.

Rollins said the pricing moves already had startedto produce some results, with unit shipments in Japanexperiencing a slight uptick in April.

But this did little to allay initialskepticism that many analysts and investors hadexpressed when Dell first revealed the price-cuttinggambit last week in its financial warning.

The problem, say many, is that the competitivelandscape in the PC market has evolved to a point thatDell's price cuts may no longer pack the punch theyonce did.

"Today,

Dell's most formidable competitors,primarily

Hewlett-Packard

(HPQ) - Get Report

,

Acer

and

Lenovo

, have increased theirscale, improved their cost structures, are wellcapitalized and are willing to accept lower margins,"wrote Credit Suisse First Boston analyst Robert Semplein a note to investors downgrading his rating on Dellfrom outperform to neutral.

By sacrificing margins and cutting prices to spurgrowth, Dell could be doing nothing more than shootingitself in the foot. "We are concerned that thisstrategy is destroying more value than it iscreating," wrote Semple. CSFB has provided investmentand non-investment banking services to Dell within thepast 12 months and makes a market in Dell securities.

For all the uncertainty in Dell's prospects, thecompany may have escaped from the co-dependentrelationship with Intel that has compressed bothcompanies' market capitalizations in recent months.

Unfortunately for Intel, Dell's move doesn'tappear to be a vote of confidence for that chipmaker'sforthcoming Woodcrest server processor, which is a keyplank in its own comeback plan.

And some analysts speculated that Dell's movecould spur other AMD holdouts, such as

Toshiba

, tomove to a dual-source processor model.

For AMD, the potential to reap extra market shareis obviously a good thing.

But as the dual-source chip model becomes thenorm, the dynamics of the PC and microprocessor marketcould shift in a way that puts new pressure on thechipmakers. Instead of Intel being able to name itsprice, PC makers are expected to have more leverage asthey seek to obtain favorable prices by playing thetwo chipmakers off of each other.

According to Needham & Co.'s Charlie Glavin, thebad news for Intel and AMD is that Dell will likelyuse pricing to squeeze both chip players. This,combined with the likelihood of microprocessorovercapacity 2007, wrote Glavin in a note toinvestors, will keep AMD and Intel shares range-bound.Needham makes a market in Intel shares.