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Monday, July 24, 2006

Widely Held 48 Hour Clock: AMD's Next Mistake


One of the things that companies sometimes do is follow bad number with announcements of even worse decisions. Advanced Micro Devices is a prime example. Its purchase of ATI Technologies, the graphics chip market is unlikely to give it any major leg up on Intel.

ATI's net income for the nine months ending May 31 fell from $149.3 million in the year ago period to $114 million this year. The company offered tepid guidance for the current quarter and missed its numbers for the quarter ending in May.

Several analysts have also pointed out that the ATI purchase could harm AMD's relationship with ATI competitor Nvidia. As Credit Suisse pointed out: "We believe the Nvidia partnership is critical to establish AMD's beachhead at the high-end, which doesn't drive material volumes, but helps with marketing (brand and performance). Acquiring ATI Technologies would put that relationship at serious risk".

In all probability, the ATI deal will drive Nvidia closer to Intel, so that it has a strategic relationship with one of the two giant chip makers.

With AMD's stock down 5% to $17.40 on the news, it will likely go lower if the merger execution is not perfect. Not likely.

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

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