Dancing With Dell 2265

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Dell To Start Selling AMD? This interview with Dell CEO Kevin Rollins would lead one to believe so, and if the comments here are true, Dell has gone beyond talk and plans to do something early next year.

Is this good news for AMD? Of course it is. Dell’s seal of approval will help open doors for AMD, and not only through direct sales, but symbolically to those who will see Dell selling AMD and concluding that they’re OK.

However, before AMD fans get too euphoric, look at what Dell will NOT do with AMD chips:

  • put them in mainstream desktops
  • put them in notebooks

    Those two categories constitute the vast majority of CPU sales these days.

    This leaves:

  • servers
  • workstations
  • gaming boxes

    . . . and I strongly suspect item number one is first and foremost.

    However, as we’ve said many times in the past, the server market is small, tiny even, compared to the desktop market. Just to give you an idea, 1.6 million servers were sold in 2Q 2004.

    You may say, “But servers use many CPUs,” the answer to that is “not really.” The vast majority of servers use 1, 2 or 4 processors, a bit over 2 is the overall average.

    So the server market is about 3.5 million CPUs per quarter, while the desktop/notebook market is more like 40 million a quarter.

    Dell currently has a bit over 20% of the server market. So a ballpark estimate on the number of CPUs Dell uses for servers is about 750,000 (compared to a figure of around 7 million for desktop/notebooks). Even if half the CPUs used were Opterons, that’s still only 375,000 CPUs.

    Toss in workstations and gaming boxes, and the total once everything kicks into gear is probably not much more than 600,000 CPUs a quarter.

    While that’s a nice chunk of change (about 8% of AMD’s production capacity); it’s not earth-shattering, and represents less than 2% of total CPU production.

    One shouldn’t underestimate the impact of such sales on AMD; this ought to be enough to let them make a couple hundred million dollars a quarter for a while, which AMD is going to need as its older Dresden loans come due.

    Another possible impact which would be good for AMD, but not good for those reading this is that there will be more server and fewer desktop chips made by AMD, which would lessen the likelihood of desktop oversupply forcing a sharp price drop.

    However, one shouldn’t overestimate the impact, either. This doesn’t mean AMD is conquering the world, or inflicted a grievous wound on Intel.

    It’s more like a slap.

    Dell and Intel: Which Is Tail, Which Is Dog?

    I certainly wouldn’t mind being a fly on the wall at any Dell-Intel meetings. I bet they’re tense.

    To Intel, Dell must be like a child grown up to be a strapping young man. He’s too old to whip, and if you tried, you might end up with the whipping.

    Dell sucks up something like 20% of Intel’s total production. If Dell ever stopped buying, Intel’s profits drop 60-70%. They’ve become the Walmart of computing.

    Given that, imagine your biggest, best, most loyal customer telling you essentially, “We’re going to start selling the other’s guys stuff here, here, and here because your stuff sucks in those areas.”

    Then they tell the world, “If we basically sucked up all of AMD’s [manufacturing] capacity it would not be enough. They don’t have enough capacity for us to use them on the desktop.”

    That boils down to saying, “Oh, we won’t use AMD for desktop because they can’t make quite enough (HINT, HINT) to supply ALL our needs.” In other words, Dell is presenting this as an A OR B, Intel OR AMD desktop world, waving a huge carrot in front of AMD while telling Intel the possible cost, sooner or later, of dropping any current sweetheart deals Intel might have with Dell.

    A bluff? Probably, certainly for the short-term.

    But what else is AMD doing in the meantime?

    Hamburger Helpers

    What AMD is doing in the meantime is rounding up contingency foundries for that day in which Dell might seriously find out that it’s not bluffing.

    The arrangement with Chartered to be a chip foundry in 2006 is old news

    What isn’t so old news is IBM’s sudden secretive expansion at East Fishkill. You know, IBM’s latest fab where AMD keeps its main chip designers. 🙂

    The article linked above talks quite a bit about a possible AMD-IBM deal (though it neglects IBM’s need to make a ton of XBox2 chips in a while), but it’s hard to imagine not at least talking about making some chips there.

    Indeed, if the dollar declines a good deal more against the euro in the near future, production capacity in the dollar zone may become essential to keep prices in the U.S./dollar zone markets reasonable.

    Again, good news for AMD, not so good news for us. When somebody else fabs your chips for you, it costs you more than if you do it yourself. This also reduces the likelihood of low prices.

    Obviously, AMD is feeling pretty feisty if they’re arranging for contingency fab work. Then again, they’ve felt feisty before, and nothing came of it, but finally getting Dell to dance with you could make any damsel feel like Cinderella.

    Email Ed

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