May 18 (Bloomberg) -- Dell Inc., the world's largest personal-computer maker, accelerated a plan to cut $3 billion in costs and said it will use processors from Advanced Micro Devices Inc. for the first time, dealing a blow to Intel Corp.

The decision to use Advanced Micro ends a 22-year exclusive agreement with Intel, the world's largest semiconductor maker, and will help Dell bolster profitability, which has flagged in the face of stiffer competition from Hewlett-Packard Co.

Dell Chief Executive Officer Kevin Rollins, who reported an 18 percent decline in first-quarter profit today, described the decisions as ``bold moves'' that responded to increased competition. The company is investing $100 million to improve customer service, and said it will stop forecasting results.

``Dell is finally making some meaningful changes, which is what investors have been looking for,'' said Tony Ursillo, who helps manage $75 billion at Loomis, Sayles & Co. in Boston.

Shares of Dell, down 20 percent this year, gained 82 cents, or 3.4 percent, in extended trading to $24.77 after the report. Sunnyvale, California-based Advanced Micro shares jumped $3.91, or 12 percent, to $35.26. Santa Clara, California-based Intel shares fell 92 cents, or 4.9 percent, to $17.73.

Advanced Micro's Opteron microprocessors will be used in a new line of server machines to go on sale by the end of the year, Round Rock, Texas-based Dell said today in a statement.

The deal gives Dell products that are winning favor with customers, who have been turning to computers that contain Advanced Micro technology sold by Palo Alto, California-based Hewlett Packard, the second-biggest PC maker, and Armonk, New York-based International Business Machines Corp.

Advanced Micro

For Advanced Micro, which topped 20 percent of the market for server chips for the first time ever last quarter, the agreement is a foothold in the last major PC maker that isn't using it microprocessors.

``It's a big deal,'' said Roger Kay, an analyst with Endpoint Technologies Associates in Wayland, Massachusetts. ``It opens the question about whether they might take more parts now that the wall has been breached.''

Sales of servers, which run corporate networks and Web sites, rose 3 percent to $1.3 billion in the first quarter from a year ago and fell 7 percent from the fourth quarter, Dell said.

PCs accounted for 62 percent of revenue in the first quarter. Notebook PC sales rose 12 percent to $3.7 billion from a year ago, while sales of desktop systems declined 3 percent to $5.1 billion. The company began selling some gaming PCs with Advanced Micro chips after the March takeover of Alienware Corp.

Warranty Costs

Dell plans to cut warranty costs by pressing its suppliers to improve product quality. The company also plans to change how it designs and builds machines and what components it uses in them, Rollins said. The company doesn't plan to cut any jobs.

``What they're really trying to do is become more streamlined,'' said Samir Bhavnani, director of research at San Diego-based Current Analysis Inc. ``I'd term it trimming the fat.''

Dell's first-quarter net income fell to $762 million, or 33 cents a share, from $934 million, or 37 cents, a year ago, as Rollins cut prices to win customers. Sales rose 6.2 percent to $14.2 billion in the period ended May 5, the slowest rate of growth in four years.

The company said last week that profit fell below a February forecast and sales were at the low end of expectations. Additional price cuts will weigh on profit margins, Rollins said today.

``We'll continue to see price aggression throughout the year,'' Rollins said in an interview.

Earnings Misses

Of 31 analysts tracked by Bloomberg, 17 recommend investors buy Dell stock and 12 say hold. Two suggest selling. A year ago, 19 said buy, six said hold and one said sell.

Dell began including stock-compensation costs in its earnings in the first quarter. The company accelerated the vesting of its stock options in January, reducing its stock-based compensation expenses for fiscal 2007 to 10 cents a share from the 18 cents previously expected.

The misstep was the third in the past year as Rollins, 53, struggles to achieve the growth delivered by his predecessor, company founder Michael Dell. The company missed its sales forecasts twice last year and in November backed away from a goal of reaching $80 billion in sales by 2009.

Rollins said Dell had higher profit margins at a time when rivals were cutting prices and building market share.

``Some of our competitors were a little stronger than we thought,'' Rollins said on a conference call with reporters. ``Our growth suffered.''

Hewlett-Packard

In the calendar first quarter, Dell's worldwide PC market share dropped to 18.1 percent in from 18.6 percent a year earlier, according to market researcher IDC of Framingham, Massachusetts. A revived Hewlett-Packard under new CEO Mark Hurd boosted its share to 16.4 percent from 15.1 percent a year earlier. Second-quarter profit rose 51 percent, Hewlett-Packard said this week.

Results this quarter will be similar to the first quarter, Dell said, without giving details.

Goldman Sachs Group Inc.'s Laura Conigliaro expects second- quarter profit of 34 cents on sales of $14.2 billion. Her profit estimate matches the average projection from analysts in a Thomson Financial survey. On average they predict sales of $14.3 billion.

(A replay of Dell's conference call can be heard at http://www.dell.com/investor .)