Dell is set to use AMD's Opteron processors in its high-end servers by the end of this year, abandoning its reliance on Intel products. The company will continue to offer products based on Intel's new Woodcrest chip but will, for the first time, offer customers the choice of AMD-based servers.

The news came as Dell announced disappointing earnings for its fiscal first-quarter 2007. After cutting prices on its PCs in an attempt to regain market share from competitor HP, Dell has reported net income of US$762 million for its fiscal first-quarter 2007, falling short of its $934 million profit for that same quarter last year.

Dell posted earnings of $0.33 per share on revenue of $14.2 billion for the quarter ending May 5, down from $0.37 per share on $13.4 billion last year.

Dell got into trouble this quarter because it tried to increase both growth and profitability at the same time, allowing its competitors to gain an advantage, company executives said.

"The competitive environment has been more intense than we had planned for or understood," said Chief Executive Officer Kevin Rollins. "The industry is going through significant change in the short term and certain consolidation in the long term."

"Dell's shaking it up with the AMD partnership. This is a strong strategic move for Dell who has been constantly struggling to meet growth expectations," said Nicole D'Onofrio, an industry analyst with Current Analysis.

The news could also tip the scales in the battle between AMD and Intel, since Dell's new AMD partnership with servers could open doors for future production of AMD-based Dell notebooks and desktops, she said.

In the meantime, Dell plans to release PCs later this year using Intel's new Core 2 Duo family of chips, using Merom chips for notebooks and Conroe chips for desktops and workstations.

Dell's decision also means it will gain some new competitors. By selling AMD processor-based servers, Dell must now compete with Sun's Galaxy servers for large enterprise business and Sun Fire servers for small and medium businesses.

"I don't know why they took so long to decide; we saw the advantages of this architecture three years ago," said Pradeep Parmar, product line marketing manager for the systems group at Sun.

Dell is still the world's largest PC vendor, with 18.1 percent market share in the first quarter of 2006, compared to 16.4 percent for its closest rival, Hewlett-Packard Co. (HP), according to IDC. All other vendors are in single digits.

However, HP is closing fast. The company posted quarterly profit of $1.5 billion on Tuesday, beating analysts' forecasts and marking an increase from $1 billion in the previous year.