Analysis: Tables Turning As Dell Embraces AMD

For all the world it looked like a skirmish among server vendors. Dell, faced with three years of losing deals--and ground--to its rivals, finally caved in recently and said it would offer an AMD Opteron-based system.

But while Dell did indeed need to make the leap onto the AMD bandwagon just to keep pace with competitors such as Hewlett-Packard, IBM and Sun, the real drama, literally and figuratively, was going on under the hood.

Dell's diminishing server revenue is the price it has paid for its staunch support of Intel, even as AMD eclipsed the chip behemoth in dual-core performance, according to analysts. The sea change for Dell can be seen as fallout in the ongoing battle between AMD and Intel, with Intel finally making up ground--perhaps too little, too late for Dell--in the dual-core race.

In fact, Dell's recent decision to offer Opteron systems by year's end is yet another promising development for AMD, even as Dell's clout begins to recede. Forced to admit that its stand-by-Intel strategy was failing, Dell must now prove that it can bring all of its customers into the world of 64-bit, dual-core computing or continue losing business to the competition.

For the first quarter, HP posted 2.2 percent growth in server revenue, while Dell's dropped 1.1 percent over the same period, according to analysts. And the bulk of HP's growth has come from Opteron-based servers. Dell had, until just recently, steadfastly refused to offer Opteron-based 64-bit systems despite key performance and power-savings advantages over Intel's competing Xeon processors.In fact, all of the major server makers--HP, IBM and Sun--have for three years enjoyed huge success selling Opteron-based servers, which outperform Intel's Xeons in throughput, power management and memory allocation.

AMD had accounted for 15.3 percent of all x86-based server shipments for the first quarter of this year, according to Gartner, compared with 5.7 percent for the same period last year.

"What we saw was pretty dramatic growth there for AMD," says Gartner analyst Jeffrey Hewitt, noting that x86 units totaled 1.9 million, up from 1.6 million.

Technically speaking, Dell's foray into the AMD world came via its recent acquisition of Alienware, a manufacturer of high-end AMD Athlon-based PCs typically utilized by gamers and multimedia niche users. Ironically, after holding out for so long, Dell jumped on the Opteron bandwagon just as Intel launched its new Bensley platform, with new, better-performing Xeon processors based on Intel's new dual-core architecture.

While Bensley might have helped Dell three years ago, not supporting Opteron--and not having a viable alternative--has cost the company business. Larger enterprises have gravitated toward Dell's rivals, especially to HP, while smaller enterprises have held off on installing 64-bit dual-core systems, often to their detriment, solution providers tell VARBusiness."We have customers that added more processors just to stay with Dell," says Kris Domich, a principal consultant at Dimension Data. "There are quite a few customers for whom it would take an awful lot to break ties with Dell."

Even before news of Dell's plans to offer Opteron broke, AMD executives were celebrating the company's success. Earlier in May, AMD unveiled a billboard in New York's Times Square with a counter showing how much power would be saved if every x86-based server in use were Opteron-based. Just prior to a party celebrating Opteron's third anniversary, Marty Seyer, AMD's senior vice president of the commercial-business microprocessor solutions sector, summed up the company's success in an interview with VARBusiness.

"The momentum has been gained in our quest of the enterprise," Seyer says. "It's been done through great partnerships, great OEMs who have embraced this, but at the core is a great architecture. I believe Opteron has beat every benchmark out there in terms of performance."

Intel, for its part, hasn't been sitting still. Bensley, which started shipping this month to channel partners, offers substantial improvements in performance, power handling and cache. Intel's first processor based on the new Intel Core microarchitecture--the dual-core Xeon 5100 Series, code-named Woodcrest--is slated to ship by the end of this month. Intel execs say the 5100 Series, based on the company's new 65-nanometer process technology, offers a 125-percent performance boost over existing single-core Xeons and a 40-percent reduction in power requirements. Fully buffered DIMM technology will provide a threefold improvement in memory throughput and bandwidth. As part of the Bensley launch, Intel says it's also readying its quad-core processors for 2007.

Also already shipping is Intel's new 5000 Series, the value-oriented precursor to the Woodcrest CPUs. Those are priced in box-set SKUs at less than $200."When you look at all those together, you get a very balanced platform that delivers industry-leading performance," says Eric Thompson, Intel's North America marketing manager for the channel.

And Intel is unfazed by AMD's momentum. "They are still on the older memory; they don't have our I/O acceleration; they don't have our Intel virtualization technology," Thompson says. "We think that we deliver a more complete, robust and balanced platform."

AMD's Seyer doesn't quite see it that way. "We don't believe they will match our performance because of the core architecture," Seyer says. "We know they won't catch us on performance per watt. We simply have an advantage there that we think [will take] three years [for them to] address. We've got momentum; customers want choice, and we have a superior architecture."

OEMs and systems builders, meanwhile, note that the rivalry among chip vendors means better competition and an improved playing field.

"It provides a bigger market for everyone to play in," says Tony Hampel, director of server product marketing at Rackable Systems, a systems builder that supports Opteron and is among 60 such VARs endorsing Intel's Bensley.Ultimately, the market will determine who wins, Hampel adds. "We'll have to let the customers and the industry make the final decision."