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Tuesday, September 05, 2006

Does AMD Bounce On Intel Layoffs? (INTC)(AMD)

AMD is up today, by almost 6% to $26.09. That is a nice bump from its 52-week low of $16.90. But, the company did not put out any news today, and their were no major analyst calls on the stock.

Intel's shares are flat at $19.98. That's up from a 52-week low of $16.75.

The market believes that Intel will cut 10,000 to 20,000 employees, perhaps today. The company has a workforce of 100,000 people.

Wall St is buying AMD on the assumption that Intel may be hampered by the layoffs, or so it would seem.

The Intel layoffs are a two-edged knife, especially for AMD. Investors may believe that Intel has thrown in the towel on near-term growth as AMD takes share in the x86 markets for servers and PCs by picking up new customers like Dell. AMD has gained share.

But, Intel is still a $40 billion company, much larger than AMD's roughly $6 billion in sales. The workforce reduction at Intel should make the company more profitable and improve cash flow once the severance charges are gone. This potentially frees up capital for R&D and marketing.

AMD's shareholders may be making a mistake. As Intel loses weight, it just may be able to run faster.

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

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