Advanced Micro Devices: “Asset Light” Strategy and Anti-Trust Suit Spawn Rumors

Advanced Micro Devices Inc. (AMD) moved up steadily throughout Tuesday’s trading session, and closed up $0.59, or 9.04%, to $7.12 amid heavy volume. The upswing comes on the back of 75.5 million shares, more than triple the daily average volume of 22.84 million shares and is one of the larger intra-day percentage swings so far this year.

The move can be attributed to the latest brief filed with the U.S. District Court in Delaware by AMD in its quest to prove Intel used illegal and unfair business practices in order to squash its lone semiconductor competitor. Some of the company’s claims were pretty damaging, alleging that Intel went as far as paying off vendors in order that they would shun AMD.

The newswires ran an interview with AmTech Research analyst Doug Freedman who fueled rumors that were already swirling, saying that there could be a sizable cash payment for AMD if Intel (INTC) agrees to settle the case. Then there was speculation that the company would start implementing its “asset light” strategy and possibly outsource its fabtech operations to cut costs and in turn dramatically improve its financial position, a step that is sorely needed with AMD having nearly $5.29 billion of debt.

However, skepticism still should reign with AMD and it’s probably better to continue to trade the news and the short covering driven pops (note that 96.5 million shares, or 20% of the float is short, at the highest level in 12 months) rather than to consider this a long-term hold unless there is some real substantive progress in improving the balance sheet. The legal briefings weren’t readily available, but the IDG News Service had a story out that really captures the essence of the recent filings and characterizes AMD’s competitive position and chances of a turnaround as bleak.

According to the brief filed by AMD at the end of 2007, the company had 13% of the processor market, “less than half of what it requires to operate long-term as a sustainable business,” in effect saying that Intel’s efforts through anti-competitive behavior to shut the company out of the processor business has worked. As the article alludes to, the rationale for staying away from AMD can best be summed up by the filing’s underscoring of concerns about

AMD’s long-term sustainability and existing worries about the company’s fiscal health — weakened by the delayed release of its Quad-Core Opteron processor and mounting long-term debt…(which) could lead CIOs to consider computers based on Intel’s chips instead.

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Comments

[OCInvestor]

How can a company that consistently sells it's products at a signficant loss soley to gain market share complain about unfair competition? AMD's quest for 50% of the market share is the reason why both AMD and Intel have not been very profitable.