Advanced Micro Devices (NASDAQ:AMD), embroiled in a brutal price war with Intel (NASDAQ:INTC), will need to raise money within the next six months, according to Doug Freedman, an analyst with American Technology Research.
Freedman says AMD shares got a boost Wednesday - up 35 cents to $14.95 - on rumors that private equity investors might be interested in AMD. The analyst says the idea is surprising, “given what we believe to be increasing concerns about cash flow at the company.”
“While we do not doubt that private equity is sitting on cash it needs to put to work, we have a hard time seeing how it would get involved in AMD at the present valuation,” Freedman writes. “In past cycles when the company has lost money the shares have traded at 0.5x sales, or $8. We are not expecting shares to fall to this level but we are concerned given our $8.8 billion revenue estimate for CY ‘08.”
Freedman thinks AMD is having problems with its relationship with Dell (NASDAQ:DELL), and sees “strong ties to Intel” as a likely result of Michael Dell’s return as the PC maker’s CEO. Overall he says, “OEM relationships are straining to stay engaged with AMD at this time given its stale product line-up.”
AMD needs to come out with new products, he says. And they also need to shore up the balance sheet. “We think management will be forced to come to the capital markets for operating cash before the end of the summer,” he asserts.
Freedman suggests staying out of the way. “We advise investors to limit their exposure to AMD shares until cash is raised and new product benchmarks are made available,” he writes, reiterating his Sell rating and $12 price target. “We would not be surprised if a discount to $12 is required to get investors to fund the AMD/Intel price war.”
AMD yesterday was down 11 cents at $14.84.
Intel: Needham Says Price Competition With AMD Heating Up; Advises Avoiding Both Of Them (February 13, 2007) Advanced Micro: Stock Crumbling Post Earnings; FBR, Credit Suisse, AmTech Downgrade (January 24, 2007)
AMD vs. INTC 1-yr chart