Intel Debuts More Product, The Chips Are Down Again At AMD

Intel (INTC) has new quad core chips that use less electricity. The 50-watt chips are aimed at the server market, where rival AMD (AMD) has been able to get to a 25% market share over the last few years. According to The Wall Street Journal: "The company estimated in a press release that its latest Xeon models represent a nearly 10-fold improvement in power consumption per processor in the past year and a half." AMD is not expected to launch rival chip until June.

After years with the tech advantage being a wind at AMD’s back, the dynamic has clearly changed. And it shows in AMD’s share price and margins. Over the last year, AMD’s stock is down 60% which Intel’s is flat.

Wall St. is becoming particularly concerned. Quoted by The Associated Press one analyst made the point: "Our view is that this will get worse before it gets better," said Christopher Caso, a senior analyst with Friedman Billings Ramsey. "This quarter’s performance is evidence that it did get worse."

It is not news that some investors think that AMD may be running out of money, but that day of reckoning maybe coming soon. "It’s a dilemma — we believe AMD needs to spend the money to build the fabs (chip factories), but they may have to find some additional financing to achieve those goals," said analyst John Lau of investment bank Jefferies & Co. "We believe investors need to see some resolution of these issues before they start to get back into the stock again."

With a cash balance of $1.5 billion and debt of $3.8 billion, AMD may not be an attractive take-over target. The only logical buyer is Intel and the Justice Department is not likely to approve a monopoly of that magnitude.

If AMD needs to raise capital, the stock could go much lower.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.