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Tickers in this Article: AMD, INTC, LNVGY, CPQ, DELL, SUNW, HPQ
Talk about a disappointment.

This past week AMD (NYSE:AMD), the well-known chipmaker announced that it will generate only about $1.23 billion in sales during the first quarter. That's well south of the roughly $1.55 billion Wall Street analysts had been expecting.

The reason for the shortfall? Lower average selling prices, and lower than expected unit sales.

In conjunction with this news, and in order to alleviate some of the concern, the company said that it plans to cut it capital expenditures by about $500 million and limit hiring to critical positions.

But Will this Be Enough to Right the Ship?
I don't think so folks. In fact, there are several reasons why I think that it makes sense to steer clear of AMD right now.

• I think that Intel (Nasdaq: INTC) can smell blood in the water at this point, and I think that the industry's 800-pound gorilla will only ratchet things up from here -- keeping up the pricing pressure and keeping it's R&D machine in high gear (which in turn will keep AMD spending big bucks on product development in response). Just as an FYI -- Intel is currently working on a new chip called Nehalem that will integrate the central processing unit with the chip's memory controller. And while I admittedly am not an engineer, many are saying that this platform will erode AMD's technological advantage -- and keep the company on the defensive.

• Worldwide semiconductor sales are lackluster. The Semiconductor Industry Association reported that while worldwide semiconductor sales were up 4.2% in February (over the same period in 2006), they were down about 6.5% sequentially from January. And while many analysts contend that these numbers should rebound in the coming months no matter how you slice it, lower average selling prices (or ASPs in industry lingo) and weak demand will continue to have an adverse impact.

• The company (as of December) was sitting on roughly $1.5 billion in cash. And Wall Street figures that it will lose 53 cents a share this year. Meanwhile, Intel was sitting on around $9 billion in cash and equivalents at that same point, and is expected to earn $1.08 a share in 2007. In short I think that it's relatively safe to assume that Intel is in a much better position to endure the ongoing price war.

• As I mentioned in my last piece on AMD (Click Here to read) there is still a concern that the company may seek a potentially dilutive financing.

• Over the last 90 days the average consensus estimate for AMD went from a profit of $1.11 a share to a loss of 53 cents a share. This coupled with management's recent comments about first quarter revenue leads me to believe that nobody has a clear bead on the near term earnings outlook. And this apparent inability to forecast a bottom, at least in my mind, makes the stock infinitely more unattractive.

On a Positive Note
• According to data provided by Thomson Financial, insiders have bought more than 141,000 shares over the last six months (at prices generally ranging from the $20 to $22 range). In my mind the fact that senior executives are laying out their own hard earned money on the stock during such a period of uncertainty is a sign that they think that perhaps a bottom is near.


• AMD still has a terrific product development team, and in spite of the countless times that pundits such as myself have all but written the company off for dead, they've come through. And the optimists suggest that this time will be no different.

• The company continues to have a customer list which includes most of the tech heavyweights. Among them are Hewlett-Packard (NYSE:HPQ), Dell Computer (Nasdaq:DELL), Lenovo (OTC:LNVGY), and Sun Microsystems (Nasdaq:SUNW). These relationships speak for themselves.

The Bottom Line
I want to believe in AMD. I really do. It's just that until I can see some sign that the price war is about end, or that Intel is going to give the company some breathing room, I can't in good faith recommend the shares.

But stay tuned because in a couple of months it's entirely possible that the landscape could change.

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