AMD's News Flash

This season's "it" IT, Advanced Micro Devices (NYSE: AMD), lost a ton of sex appeal today after it warned that the future wouldn't be as rosy as many have expected. The stock was smacked for a 20% loss following the news.

Is it really so bad? Fourth-quarter revenues were pegged to increase only slightly from Q3's $1.24 billion. Since the Street was looking for $1.35 billion, that's a decent miss. Year over year, it looks like AMD's headed for a meager 3% sales uptick, depending on how close the Q4 results are to that $1.24 billion. Even worse, management said operating income would be "down significantly" from Q3.

Among the reasons for the shortfall, the firm cited pricing competition from its colossal flash duel with chip leader Intel (Nasdaq: INTC). Left unsaid is the likelihood that the battle with Intel on the CPU front is, for all AMD's reported market-share successes, taking a heavy toll.

In related "I-don't-understand-my-investment" news, rookie jitters about the crucial differences between the NOR flash made by the two CPU giants and the end-consumer NAND flash products sold by SanDisk (Nasdaq: SNDK) and Lexar (Nasdaq: LEXR) meant that those two stocks took a bit of a morning drubbing, especially in the low-volume pre-market. Folks, the chips have completely different uses and markets. That doesn't mean they don't have problems of their own (I've discussed some biggies here), but competition from AMD and Intel is not among the dangers, at least not yet.

To get back to AMD, investors need to give some serious thought to the firm's valuation. Clearly, the stock was priced at a premium. Even meeting expectations might not have been enough to keep it near recent highs. While AMD has been the "it" IT equity for the past few months, Intel's 90%-plus dominance is not likely to break any time soon. In the meantime, that firm commands 29% operating margins, against AMD's 5%. As much fun as it is to see the underdog take a few bites out of its master, AMD is hardly a slam dunk.

In fact, given the brutal nature of the price war, the mature state of the industry, and even uglier options packages, neither of these is it for me. But if you must invest in computer guts, remember to ask yourself the investor's bottom line: "What's in it for me?"

For related Foolishness:

• Intel is out. (Irony-impaired need not click.)
• Intel's got a lot in common with Stuart Smalley.
• AMD is lean and hungry. Is that enough?

Seth Jayson runs Intel and AMD boxes at home. At the time of publication, he had shares of SanDisk but no positions in any other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.