Advertisment

Dell to use AMD chips, says profit slumps 18 p.c.

author-image
CIOL Bureau
New Update

By Philipp Gollner

Advertisment

SAN FRANCISCO - Dell Inc. on Thursday said it would begin using chips from

Advanced Micro Devices Inc., sending shares of both companies higher.

Shares of AMD rose more than 13 per cent, shares of Dell rose 4 per cent and

shares of Intel Corp., AMD's far larger rival and Dell's only chip supplier

before the announcement, fell more than 5 per cent.

Dell, which posted an 18 per cent decline in quarterly profit, had been the

last major PC maker to use processors only from Intel, the world's largest chip

supplier. Dell's decision to use the Opteron microprocessor finally consummates

a long-running on-again, off-again flirtation with AMD.

Advertisment

Dell plans to introduce multiprocessor server computers using Opteron by the

end of the year, it said in a statement.

In its earnings report, Dell said net income declined to $762 million, or 33

cents per share, from $934 million, or 37 cents per share, a year earlier.

Revenue increased to $14.2 billion from $13.4 billion.

Analysts, on average, had forecast earnings per share of 33 cents and revenue

of $14.2 billion, according to Reuters Estimates. Analysts cut their estimates

after Dell last week said earnings were lower than the company's February

forecast as it cut prices to rekindle growth.

Advertisment

"It is not clear to us why more aggressive pricing will drive improved

profits going forward, as it clearly failed to do so in the back half of last

quarter," said Cindy Shaw, an analyst at Moors & Cabot.

Round Rock, Texas-based Dell, whose founder Michael Dell changed the computer

business by selling PCs directly to customers and bypassing retailers, has

stumbled in the past year as competitors including No. 2 PC maker

Hewlett-Packard Co. offered lower prices thanks to cheaper components and more

efficient manufacturing operations.

The company also said that it was ending its practice of giving specific

revenue and earnings per share forecasts, noting only that it does "expect

financial results for the second fiscal quarter of fiscal 2007 to be similar to

its first quarter results."

Advertisment

For the current quarter, analysts expect Dell to earn 34 cents before items,

on average, on revenue of $14.4 billion.

"The elimination of go-forward quarterly targets is an indication that

Dell's uncertainty about its business remains high," Goldman Sachs analyst

Laura Conigliaro wrote in a brief note to clients after Dell reported its

results.

Shares of Dell have plunged more than 40 per cent in the past year as the

company three times has missed revenue forecasts. Its stock trades at 16.8 times

expected 2006 earnings per share, about the same as Hewlett-Packard, whose stock

is up 44 per cent from a year ago.

tech-news