By William Trent, CFA of Stock Market Beat
Just a few short months ago it seemed that Advanced Micro Devices (AMD) was going to steal Intel’s (INTC) lunch money. Now that Intel has beaten up AMD with a price club and is eating it’s lunch, things are really getting ugly:
Advanced Micro Devices, embroiled in a brutal price war with Intel, will need to raise money within the next six months, according to Doug Freedman, an analyst with American Technology Research.
From taking market share to running out of cash in less than one year… amazing.
Perhaps not surprisingly, the industry mavens at Semiconductor Fabtech (whose customers really don’t want to believe semi capex will be cut) are more sanguine. Is a CapEx crunch at AMD brewing? – Semiconductor Fabtech:
I also noted Mike Splinter of Applied Materials, during a conference call yesterday, clearly state that he expects both AMD and Intel to meet current CapEx plans this year. This point shouldn’t be overlooked as Applied has spent a lot of time with both of these customers, checking on purchase requirements for this year.The vibes picked up over AMD’s spending plans indicate at the moment that orders for Fab 36 and Fab 38 are being placed, but also that AMD is getting very tough on prices and contract deals – even delayed payments!
That last point is a bit scary and adds to the cash problem rumours, but CapEx overall doesn’t seem to be affected….
If CapEx is cut, we would expect this to happen later in the year rather than now, and if AMD does go back to the market to raise more funds, then CapEx could be saved anyway.
Even before the price battle with Intel started and AMD forked out for ATI, it was going to be tough for AMD to fund this high level of CapEx this year. There seems little doubt that it’s tougher now but few real signs that CapEx will be cut.
Will somebody please stage an intervention?
The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Plantronics (PLT) put options
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