Analyst: AMD cash woes attracting investors?

February 16, 2007 – A protracted price war with Intel is taking its toll on AMD, and the company could be forced to find a cash infusion within six months, possibly attracting private equity investment, according to an analyst.

“We think management will be forced to come to the capital markets for operating cash before the end of the summer,” said Doug Freedman, analyst with American Technology Research, in a research note.

He cited “increasing concerns about cash flow,” as well as possible tangles with its relationship with PC maker Dell; the PC maker needs to improve but has no captive markets, whereas AMD is strong in consumer PCs, enterprise servers, and international markets, so growth with Dell will take time. Further, the return of CEO Michael Dell is seen to emphasize strong ties with rival Intel, Freedman said. Overall, “OEM relationships are straining to stay engaged with AMD at this time given its stale product line-up,” he wrote.

In the meantime, individual investors should be wary, Freeman thinks. “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,” he wrote. “We advise investors to limit their exposure to AMD shares until cash is raised and new product benchmarks are made available,” he said, adding that “we would not be surprised if a discount to $12 [from $14.95 on Feb.15] is required to get investors to fund the AMD/Intel price war.”


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