In a Blow to Intel, Dell Looking to AMD

Alan Penny

3 December 2019

2 min read

intel logo

  • Dell evaluating relationship with Intel 
  • AMD chips could be a possible replacement
  • A possible major boon for AMD going forward

In a blow to Intel, Dell CFO Tom Sweet suggested on Tuesday that AMD could solve the ongoing chip shortage at Intel. He revealed that Dell has been evaluating AMD chips. This is big news, as Dell is one of the largest suppliers of PCs in the United States. Dell has recently seen sales declines in consumer PCs and in servers due to the slowing supply of microchips, which lands squarely on the shoulders of Intel. Because of this, Dell is being forced to look elsewhere.

Dell seeks change after sales decline

With sales dropping 6% in consumer PCs, and 16% in servers, Dell is now looking for change out of necessity. While they have long been customers of Intel, loyalty can only last so long, with Tom Sweet stating Dell is feeling the pinch and therefore will need to do something quick.

With sales dropping 6% in consumer PCs and 16% in servers, Dell is now looking for change out of necessity.

Dell also has seen gains at VMware, of which it owns 82% of the cloud services provider. It showed gains of 11%, which equates to 2.5 billion in total sales. In this environment, they simply cannot wait around for Intel to get it together.

Earnings report

Dell raised its full year non-GAAP earnings guidance to $7.40, as opposed to the $7.25 initially estimated. Previously, they had suggested that forecast earnings of $6.95 to $7.40 per share were possible. Its revenue outlook was more muted back then due to issues with the Intel supply chain and of course larger macro issues, such as the US/China trade war that seems never-ending.

By reporting these numbers and revising to the upside, it shows that Dell should continue to do quite well. Switching to AMD microchips may be yet another reason for Dell to continue climbing.

One thing is for sure, this is not good news for Intel which is already struggling. During early Tuesday trading, Intel had dropped 2.5% on the news, and is in a very choppy and dicey market overall. Dell also lost 2%, but clearly is in the driver’s seat to not only find other suppliers in the realm of AMD, but also possibly drive down pricing strength from Intel. That’s because they will do whatever they can to keep that business. Longer-term, this should lead to cheaper supply pricing for Dell, and that in the end should be a good tailwind for the stock.

All things being equal…

All things being equal, Dell should be the winner in this argument, perhaps with AMD if they do in fact get the contract. Intel will certainly continue to struggle overall, as keeping Dell as a client will be paramount. Dell has publicly stated its displeasure with Intel, and now Intel will be pressured even further to fix their supply chain issues, and of course become competitive with its rivals.

Written By
Alan Penny

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