Dell Likes AMD a Bit More, Earnings Results Less

UPDATE: Dell  today announced an expansion of its plans to use AMD processors in its machines, while revealing a
quarterly earnings report that showed profits fell by more than half.

For its second fiscal quarter of 2007, the world’s number one PC maker
said net income fell by 51 percent to $502 million ($0.22 per share).
Part of the difference between the $1 billion profit ($0.41 per share) from the same quarter last year was due to some one-time accounting changes.

Separately, Dell also announced that the SEC has requested information
relating to revenue recognition and other accounting and financial reporting
matters since an informal probe began in August of 2005.

The AMD news added a bright spot to a less-than-stellar earnings report,
even though Dell’s revenue climbed by five percent to $14.1 billion for the
quarter.

This is a very difficult period for Dell,” Roger Kay, analyst with
Endpoint Technologies Associates, told internetnews.com.

“They downplayed the SEC investigation, but that can’t be a good thing.
They’re under margin pressure and their pricing model needs fixing. It
seems like there are a lot of loose bolts at Dell that need tightening.”

In a conference call with analysts today, Dell CEO Kevin Rollins said the
company was “too aggressive” in its pricing the past quarter because
component prices didn’t come down as much as expected.

Kay was surprised that Dell would make such an admission. “They used to be good at discounting,” he said.

“They’ve been telling us for years about the advantages of the direct
model and how it gives them the ability to course correct on the fly based
on customer feedback. You expect them to be more in control of their
systems.”

Dell announced plans earlier this year to phase out the multitude of
special pricing promotions it does. Rollins said today that discounts will
be implemented more carefully and the company thinks ultimately customers
will be happier with more consistent lower pricing.

The Round Rock, TX computer maker had earlier said it planned to use AMD
processors in multiprocessor servers due out the end of this year. Today,
Dell said it plans to release Dimension desktop models powered by AMD.

To date, Dell has used Intel as its exclusive x86 chip supplier. Dell
confirmed its still on track to introduce an AMD-based multiprocessor server
by year’s end and also said it will introduce a two socket server based on
AMD’s Opteron server processor in the same time frame.

Contrary to news reports elsewhere today, Dell did not announce any plans
to use AMD for any of its notebook computers.

Kay said Dell is late to the party in adding AMD to its product mix, but
it had to respond to the success competitors like HP, IBM and Sun have
realized by offering both Intel and AMD-based systems in their product
lines.

“This is as much as defensive play by Dell, not wanting to lose any more
customers, as anything,” said Kay.

Dell was only asked a few questions concerning the 4.1 million recall
of notebook batteries announced earlier this week.

The batteries were made by Sony. Since Dell said it doesn’t expect the
recall to impact its earnings, analysts have speculated the $200 to $300
million cost will be largely be borne by Sony.

Rollins said the recall was “the right thing to do,” even though only
a small number of incidents were reported and the company might have been
able to avoid such a big recall.

“We don’t want our customers to believe we won’t do the right thing,”
said Rollins.

He said Dell is working out details of a separate plan for enterprise and
large account customers to facilitate the exchange of batteries in a
centralized way.

“We’re dedicated to taking these batteries off the market as soon as
possible,” Rollins said.

Separately, Rollins said Dell is going to expand its original commitment
to invest $100 million in improvements to customer support and the customer
experience, to $150 million this year.

News Around the Web