updated 8/17/2006 7:08:21 PM ET 2006-08-17T23:08:21

Dell Inc. on Thursday posted disappointing second-quarter earnings amid a regulatory probe. The company also announced an expanded partnership to put Advanced Micro Devices Inc. computer chips into a new line of Dell servers and desktop PCs as early as next month.

The deal was revealed as the Round Rock-based company’s second-quarter profit fell 36 percent to $605 million, and days after it voluntarily recalled 4.1 million potentially flammable batteries supplied by Sony Corp. for laptop computers.

Dell also said Thursday it was cooperating with an informal investigation by the Securities and Exchange Commission over “accounting and financial reporting matters for certain past fiscal years.” Dell said it did not believe there were any issues, it also was conducting its own internal investigation.

CEO Kevin Rollins said Dell received a letter from the SEC in August of 2005 “asking us about a fairly broad level of questions on some revenue recognition.”

“We’re complying with that informal investigation,” he said. “That’s about all we know. We don’t think there are going to be any issues that are material that we’re going to have to worry about.”

In its last earnings report in May, Dell said it would start using AMD processors for specialized computer servers used mainly by large businesses. It ended a long-standing exclusive relationship between the Round Rock computer maker and Intel, AMD’s chief rival.

In Thursday’s announcement, Dell will offer Dimension desktop PCs with AMD Athlon processors net month, and several new server models using AMD Opteron chips by the end of the year.

Intel, which had been alerted before Thursday’s announcement, said it was disappointed by the decision.

“It’s unfortunate, but keep in mind that Dell is not replacing any Intel models,” Intel spokesman Bill Kircos said. “It’s a competitive marketplace.”

Dell, which slashed its second-quarter outlook last month, reported earnings of 22 cents per share on sales of $14.1 billion — below the earnings of 32 cents per share on sales of $14.2 billion the company had initially forecast.

However, it was enough to meet the lowered expectations of analysts polled by Thomson Financial. In the same period a year ago, Dell had earnings of 38 cents per a share on sales of $13.4 billion.

“While we are disappointed with the results for the quarter, we are taking the necessary actions to correct missteps and improve our results for the long term,” Rollins said. “Key actions include accelerating cost initiatives, increasing investments in service and support, and better pricing management.”

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