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Thursday, October 26, 2006

AMD Challenges Intel To Get Back In The Game

Stocks: (AMD)(INTC)(ATI)(NVE)

AMD is close to closing it purchase of graphics chip company ATI Technologies. The No. 2 x86 company is already making plans. By 2009, the joint firm plans to make chips that combine AMD processing power with ATI graphics features. The chips will be relatively inexpensive, perhaps 50% less than current models made for PCs.

The move marks another shot in the ever-excalating war between AMD and Intel. Intel is out with its new Core 2 Duo chip which many reviews claim is faster that the current generation from AMD. Intel is also introducing a four core chip for servers. AMD has been taking server share from Intel for a couple of years, and now has over 20% of that market.

PC makers are hungry for less expensive chips. Margins at companies like Dell are squeezed each time they move prices down to take share from rivals like Hewlett-Packard and Lenovo. Of course, each of these companies is compelled to reviews it prices as well.

A chip from AMD that allows PC manufactures to lower prices but keep operating profit high should be a huge success, especially if these chips have graphics components that will help run the new generation of software, including Microsoft's Vista.

Intel is working on chips that will communicate with one another over laser connections, but this will be of more use in the server market.

If AMD's new chips are ready in a little over two years. Intel better get moving again on the R&D front. It may need help from smaller chip firms like Nvidia. Or, an acquisition of one of these graphics firms.

More M&A?

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

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