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Dell is looking to give more business to AMD due to Intel's chip shortage

Brian Sozzi
Editor-at-Large

Dell (DELL) isn’t waiting around for its long-time chip supplier Intel (INTC) to get its act together.

“We are evaluating AMD chips,” Dell CFO Tom Sweet said on Yahoo Finance’s The First Trade when asked how the tech giant plans to address Intel’s ongoing chip shortage. Sweet points out Dell does already use Advanced Micro Devices (AMD) chips in some instances but more business for AMD from Dell looks to be in the cards.

He doesn’t expect Intel’s supply issues to abate until the second half of 2020 at the earliest. Dell has primarily relied on Intel chips for 35 years.

It was Intel’s chip production problems that largely hampered Dell in the latest quarter.

The main knock on Dell’s quarter were 6% and 16% sales decline in consumer PC and servers, respectively. PCs were held back by a lack of Intel chip supply. Server weakness reflected more macroeconomic uncertainty causing big companies to delay capital expenditure spending.

Meanwhile, Dell’s client solutions segment saw sales rise 5% to $11.4 billion on the back of strength for commercial desktops and workstations. Within Dell’s infrastructure segment, storage sales popped 7% to $4.1 billion. And over at VMWare (Dell has an 82% stake in the cloud services provider), sales gained 11% to $2.5 billion.

Operating margins improved in all segments owing to deflationary component prices.

Dell laptops, photo

Dell raised its full-fiscal year non-GAAP earnings guidance to $7.25 to $7.40 a share. Previously, Dell had forecast earnings of $6.95 to $7.40 a share. But its revenue outlook was more muted due to the issues with Intel and macro risks.

“We expect Dell to make continued progress on deleveraging its balance sheet; however, we also acknowledge the operating environment could become more challenged in FY21,” said Goldman Sachs analyst Franklin Jarman. “Tailwinds that benefited FY20 will become headwinds as we roll-forward into FY21, including the Windows 10 refresh cycle and component costs, which Dell expects to become inflationary next year.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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