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It's not easy to be the underdog, fighting a much bigger enemy. But some years are better than others, and Advanced Micro Devices (NYSE: AMD  ) looks just about ready for a couple of fat ones right now. That is the takeaway from AMD's analyst day of 2009.

Start from Square 1
Main rival Intel (Nasdaq: INTC  ) just settled a number of lawsuits and regulatory complaints about years of alleged antitrust behavior, paying $1.25 billion to AMD in the process. And while AMD announced today that it will be using some of the cash to pay down debt, it stands ready to turn the rest of the welcome cash infusion into something bigger than just prepayments on its loans.

Let's start with a look at AMD's recently separated manufacturing arm, now co-owned by investors from Abu Dhabi and on its way to becoming a serious force in global semiconductor manufacturing.

Intel likes to point out that it has a more advanced manufacturing process than AMD, and that this is a real business advantage. Smaller transistors and electric leads on processors allow for lower power usage, more chips per silicon wafer, and generally better business all around. Intel has the lead now because AMD stumbled badly on its way to the 45-nanometer checkpoint. Intel is reportedly moving to 32 nanometers in early 2010, leaving AMD far behind.

Or so you would think. AMD's own 32-nm process is on track for "risk production" at the very start of the third quarter. Despite some painful delays announced back in September, the conversion is running according to its revised schedule after some time under the tutelage of technology partners like IBM (NYSE: IBM  ) and Sony (NYSE: SNE  ) , and on the back of its partners from Abu Dhabi. Yes, that still puts AMD's full-on production schedule seemingly several quarters behind Intel's, but not as far back as the last-generation change would indicate.

Furthermore, AMD works closely with leading independent manufacturers like Taiwan Semiconductor Manufacturing (NYSE: TSM  ) . Through that partnership, AMD is already shipping 40-nm graphics chips ahead of graphics peer NVIDIA (Nasdaq: NVDA  ) . AMD claims to be taking market share from NVIDIA, and that matches up with NVIDIA's own reports of supply problems. While there have been some initial problems with the production of these newer advanced memory chips, the lessons learned from cranking out tiny, power-efficient graphics chips on schedule should come in handy when the bread-and-butter system processors come up for the same treatment.

The road ahead
This is where AMD's story gets both complicated and exciting. The company has many products lined up for introduction over the next couple of years, including the final payoff for the often-maligned acquisition of Canadian graphics specialist ATI. Designed to take advantage of the 32-nm process, AMD's first Fusion products will launch in 2011. This, my friends, is a game-changer.

The general trend these days is that the lines between graphics processors and system processors are blurring. A graphics chip can now perform much of the same math that your main processor would usually handle, while system processors can now assign some specialized duties -- like graphics processing -- to one of the multiple cores found on modern processors.

NVIDIA is great at designing graphics products, and Intel is pretty awesome at the general processing game. But unless Intel buys NVIDIA, AMD is the only company that can claim years of high-performance experience in both of these markets. Today, AMD is paving the way toward a single-chip future through the software stage of the Fusion project. Some of the processing that an AMD graphics product could handle better than a traditional processor can be handed off to the correct chip for the task, making the most of your computer's powers. For example, Adobe Systems (Nasdaq: ADBE  ) will support this kind of load balancing in the next version of its Flash platform -- you know, the technology that powers the majority of all video content you see online.

AMD management calls this "heterogeneous computing," where programmers just write code and let the system figure out on which chip it should run. When true Fusion hardware makes it into stores, AMD will have a tangible advantage that Intel might find hard to match for some time.

Why should I listen to you, fanboy?
Yes, I own AMD shares (and have been very happy with their performance in 2009), and sure, you might expect me to wax poetic about the company's future at all costs. Just remember that I will call the company out for bad execution and silly decisions. And I will tell you when AMD isn't ready to benefit from its good moves quite yet. Today, several of AMD's upcoming products are running ahead of schedule. While it has seen its share of delays, the 32-nm process appears to be back on track in a way that the shaky 45-nm conversion never was, and AMD looks just about ready to hit a few home runs.

Will the stock price go back to the $40s, where the Athlon 64 took it years ago? Heck no, but it doesn't have to go that far from today's $7.10 level to be a great investment. I say it's still time to buy AMD.

Am I insane -- or a beacon of light in the wilderness? Tell me off in the comments below.

Fool contributor Anders Bylund owns shares in AMD and Taiwan Semi, but he holds no other position in any of the companies discussed here. Adobe Systems and NVIDIA are Motley Fool Stock Advisor recommendations. Intel is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (11) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2009, at 1:05 PM, taishiba wrote:

    no you are not insane, this a great turnaround taking shape and almost all the wall street analysts have been completely wrong on this....

  • Report this Comment On November 18, 2009, at 1:05 PM, taishiba wrote:

    no you are not insane, this a great turnaround taking shape and almost all the wall street analysts have been completely wrong on this....

  • Report this Comment On November 18, 2009, at 1:37 PM, VanquishedAgain wrote:

    Great article!

    You're not crazy at all. We all believed in AMD, from it's history, and from the fact that the chances of the next leading brand in processors going belly up is far from realistic. This is good news, hopefully people will start to have faith in AMD and realize it isn't such a risk!

    Thanks again for the article, well done!


  • Report this Comment On November 18, 2009, at 1:43 PM, libra4us wrote:

    I commented that AMD was over sold with too much shrt.

    Wall Street people are just normal people. It's reasonable that most of them don't have enough in-depth capability in technology because they don't have enough time and knowlege for it. In addition, it's much easier and is the human nature to take side with the bully and kick the little one that its growth and the scale of economy was constrained and limited by the bully.

    With the settlement done, from now on, I hope AMD executes well without excuses to show and prove itself to the world and quickly increse its scale of economy to compete more effectively.

  • Report this Comment On November 18, 2009, at 1:46 PM, EdFromOhio wrote:

    Their debt level was a big concern of mine, but it sounds like the payoff from the lawsuit will help to get people out of the lifeboats and back onto the ship.

    I have always liked AMD's products. However, their current problem isn't 32nm, it is Intel's hyper-threading. If you have a Core i7 quad-core chip, Windows treats it as 8 individual processors. AMD has no such capability yet. While 4 fast cores on AMD's chips are great, 8 would be even better.

  • Report this Comment On November 18, 2009, at 2:31 PM, TEBuddy wrote:

    AMD not only has all this great momentum and cash, and a great lineup of new products on the way in graphics and processing, but now they are royalty free in every way in the x86 arena. No payoffs to Intel. And assuming the mobile line will transition to 45nm, those little Neos and Turions will be even better in a few months.

    Intel Hyperthreading is not as good as it sounds, and can actually decrease system performance. Its great if you are only running several low power programs, but if you mix it up youre likely to get poor performance from your virtual core when needing the computing power.

  • Report this Comment On November 18, 2009, at 2:42 PM, AbstractMotion wrote:

    This is a good chance for AMD to catch up on some of where it's fallen behind and pay down some of it's debt. They still design some solid chips, but with a 5 years armistice it should give the company a chance to restructure and implement some of the current and next generation technologies without a massive legal headache or having to design compatible functionality in parallel. I'd love to see the industry get back the point where chips could be used in the same board regardless of manufacturer, but I doubt AMD will drop hypertransport that easily. They've still got a few potential aces up their sleeve with things like Z-RAM as well.

  • Report this Comment On November 18, 2009, at 2:42 PM, moe888 wrote:

    AMD has missed earning expectations for something like 5 qtrs in a row.. they overpromise and under deliver.. over and over. Look for yourself. Don't believe a word they say until they can prove it with earnings...

  • Report this Comment On November 18, 2009, at 2:55 PM, TEBuddy wrote:

    I think you are wrong about missing earnings expectations. They have typically been above them even though that is still at a loss. When a company takes a "charge" they didnt lose any more money, they just said their street credit was worth less than they thought, but they are paying the same bills, and making sure it looks like they are more broke than they are.

  • Report this Comment On November 18, 2009, at 3:55 PM, SnarfJabroni wrote:

    Anders Bylund the avowed AMD fanboi, sez: "including the final payoff for the often-maligned acquisition of Canadian graphics specialist ATI. Designed to take advantage of the 32-nm process, AMD's first Fusion products will launch in 2011. This, my friends, is a game-changer."

    Anders, my friend...unfortunately for you and AMD, it IS a game changer...but alas, Intel will be the one changing this game in three months, and per usual, AMD will be a day late and a dollar short...or make that, 18 months late, and a few billion dollars short!

  • Report this Comment On November 20, 2009, at 9:58 PM, asH95 wrote:

    I love puzzles. That being said I find AMD vs. Intel the NY Times crossword puzzle of puzzles. I believe most folk are not completely sure of all that has just recently happened, but are inherently agreed that it was good for AMD- just look at the volatility of the stock since the news, and the hesitant comments and articles (present included). In dissecting past and current events between the two companies I am certain of three things:

    1)The concessions between Intel and AMD will keep Intel from changing X86 specifications at the last moment (Intel’s usual tactic), insuring AMD can finally get on the merry-go-round.

    2) AMD understands and are proficient with both the CPU and GPU architecture.

    3)AMD has good ideas, and are eager to get them going.

    On a side note I really believe AMD will share their initial concepts with Intel, one, because AMD will still have the ‘better’ understanding of both CPU-GPU fusion, while using Intel to cement x86 standards. This will benefit both AMD & Intel, and perhaps put much distance between CISC and RISC CPU designs. Currently it appears all things are falling AMD’s way, it’s funny how these things happen.

    please read for better understanding

    A look at AMD's AVX and XOP

    Striking a Balance


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