Updated from 8:17 a.m. EDT
Bowing to market pressure,
said it will start offering processors by
Advanced Micro Devices
as the company's profits fell 11% in the first quarter.
The Round Rock, Texas-based company said Thursday that it will offer servers featuring the AMD Opteron processor by the end of the year, in addition to servers running
chips. Dell's practice of selling machines featuring only Intel processors has been cited as one of the reasons for the company's recent struggles.
Samir Bhavnani, director of research at Current Analysis, said the move should make Dell more competitive. But he said the news is particularly important for AMD.
"Getting the market leader is probably the biggest win that AMD has ever had," said Bhavnani.
Shares of Dell were recently up 74 cents, or 3.1%, to $24.69 in early trading Friday.
AMD shares surged 7.9%, or $2.48, to $33.83. Intel was off 66 cents, or 3.5%, to $17.99.
In keeping with the revised financial projections it announced last week, Dell said Thursday that its first-quarter net income was $762 million, or 33 cents a share, compared to $934 million, or 37 cents a share at the same time last year. Sales were up 6% year over year, at $14.2 billion.
Last week, the company warned investors that its first-quarter financial results would fall short of its initial expectations. Dell had previously projected revenue to range between $14.2 billion and $14.6 billion, with EPS of 36 cents to 38 cents.
Dell ascribed the shortfall to aggressive price cuts it enacted in the latter part of the quarter designed to spur future growth. The company has recently faced stiff competition from a resurgent
, as well as from foreign PC vendors like
"The competitive environment has been more intense than we had planned for or understood," said CEO Kevin Rollins in a statement accompanying the release. "We have now taken action to reignite our growth and reassert the unique value of our Direct Model."
Dell said that it would spend $100 million this year to improve its customer service operations and that it has hired 2,000 additional customer service and sales representatives as it adds or expands call centers in Ottawa; Manila; Nashville, Tenn.; and Oklahoma City.
The company will also launch a program designed to drive $3 billion in cost improvements this year including component, and structural material costs, as well as improved warranty costs. Rollins said the plan would not include any job cuts.
The move to offer AMD processors in its server line follows months of speculation that Dell would sooner or later be forced to offer products with AMD chips, which are widely believed to provide better performance and power efficiency than the current generation of Intel chips.
Still, the decision to switch to AMD processors now is somewhat odd, given that Intel's new Woodcrest processor is slated to start shipping in the next month. According to Intel, Woodcrest will narrow the performance and power-efficiency advantage that AMD now enjoys.
In a conference call with reporters, Rollins stressed that the AMD chips were only being used in Dell's high-end, four-processor servers. "Our product announcement really is in a very small category, a product where we're not selling a ton of products from Intel today anyway," said Rollins. He said that Dell would continue to buy the "vast majority" of its processors from Intel for the company's desktops, notebooks and the rest of its server line.
Dell executives did not rule out expanding the use of AMD chips across its product line, answering questions on the topic by stating that Dell will deliver the best technology to its customers.
For its part, Sunnyvale, Calif.-based AMD issued a press release stating that it was looking forward to working with its newest customer.
"Dell is a customer-focused company and we're pleased to see that they are listening to their customers and providing them the choice of innovative AMD products," AMD Vice President of Commercial Business Marty Seyer said in a statement.
Dell also announce that it was ending its practice of providing specific quarterly guidance for revenue and per-share earnings, saying it would focus forward-looking statements on long-term, specific company and industry factors that could influence performance.
The company said it expects second-quarter results to be similar to those in the first quarter. A Thomson First Call analyst consensus survey had expected Dell to post second-quarter earnings of 34 cents a share on revenue of $14.34 billion, suggesting that Dell's guidance is slightly below current estimates.
Going forward, Dell signaled that it was shifting its priority to growth, rather than maintaining high profit margins, which the company blamed for some of the recent slowdown in sales.
"Our belief is that over the last year or so we let margins float up and allowed our growth to essentially come to a stall," said Rollins. To reignite growth, Dell executives said they would launch a multipronged plan with price cuts playing a central role.
"We're trying to find the right spot to where we can get growth that's higher than 6% and yet have good operating margins," said CFO Jim Schneider.
Schneider said that operating expenses should scale down as a percent of revenue over time, but that they could actually go up in the short term as Dell takes steps to reinvest in growth. He also said that Dell is planning to offer up to $1 billion in commercial paper this year, likely in the second quarter.
During the first quarter, Dell said that mobility products revenue grew 12% year over year, while desktop PC revenue decreased 3%. Imaging product revenue were up 10%, with sales of ink and other printer consumables surging 54%.
Sales outside of the U.S. reached 44% of total revenue, up 12% year over year, with double-digit revenue growth in Asia-Pacific and Japan as well as in China.
Dell said it lost share in the U.S. consumer market, although the company did not specify how much. Revenue for the Americas region was up 4% year over year.