Dell has announced that it will use Opteron processors from AMD in its high-end, multiprocessor servers by the end of this year.

The news came as Dell announced disappointing earnings for its fiscal first quarter 2007. Until now, Dell has only used chips from AMD rival Intel in its hardware.

After cutting prices on its PCs in an attempt to regain market share from competitor HP, Dell yesterday reported net income of $762m (about £405m) for its fiscal Q1 2007, falling short of its $934m (£495m) profit for Q1 last year.

Dell said it drew profit from increased sales of servers, storage and overseas markets. Compared with this quarter last year, the company's sales outside the US grew by 12 percent, generating 44 percent of Dell's overall revenue.

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 in a conference call with investors.

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

To survive those changes, Dell will spend $100m (£53m) to improve customer service by hiring 2,000 sales and support workers and opening or expanding call centres in Oklahoma City, Nashville, Ottawa and Manila.

And the company will finally start selling servers powered by AMD processors. Dell had been the largest computer vendor to use only Intel chips in its computers, but the company softened that position in March when it acquired Alienware, a manufacturer of high-end gaming PCs running on both Intel and AMD chips.

Now Dell will bulk up its enterprise server line by offering customers a choice between Intel's new Woodcrest chip and AMD's Opteron by the end of 2006.

"Dell is shaking it up with the AMD partnership. This is a strong strategic move for Dell, which has been constantly struggling to meet growth expectations," said Nicole D'Onofrio, industry analyst at 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 laptops and desktops, D'Onofrio said.