Dell = AMD's big Mistake!

So, everybody heard the news. AMD disappointed wall street big time inspite of its painted rosy picture last month. What happened? Is it due to the price war with Intel? Not, entirely! Brace yourselves: it is actually the Dell effect! And yes, you heard that right. You want me to say it again? IT IS THE DELL EFFECT!!!

AMD was so excited they got a piece of Dell, but it discovered afterwards that it was a very sour piece. AMD thought that Dell was the ultimate victory, so, they really did not do their homework before signing the dotted line. What AMD is dicovering now is this: Dell will drain their inventory, alienate their relationship with the channel, and squeeze their margins as much as possible. Evidence: Q4, 2006. AMD will discover that everytime they cut their cost, Dell will be there to collect the new savings!

AMD was locked up with a price war with Intel for few quarters. There is no doubt that this price war is a factor in Q4 results, but the biggest factor was and will always be Dell. What AMD is going to find out is that they may even have to alienate their relationship with other vendors to make Dell happy. Those are relationships they worked very hard to get in the last couple of years.

You see, Dell will play both AMD and Intel for more discounts. That was a major part of their strategy to afford offering their products as such a low price and make money and that is why they were number 1 PC company for a long time. Now, Dell will use the AMD vs Intel competition to shave more profits of the bottom line of both. End result: Dell wins!

AMD did not need to wake up from the sweet dream to find the bitter reality at a time where they need to up their profits to be able to afford paying for ATI and their new fabs. Do not forget their development of new architectures. Sorry, but this big booboo is a big one Hector!