Much as I admire the guts and determination of those who work at Advanced Micro Devices (NYSE:AMD), I wouldn't touch the stock with your money.

Give peace a chance
What, too harsh? Blame the war. The price war, that is. According to statistics from the Semiconductor Industry Association, the average price of microprocessors declined 18% year over year, thanks to punitive discounting by both AMD and Intel (NASDAQ:INTC).

Think AMD will outlast its larger rival? Get real. AMD has a history of using cash rather than generating it. Plus, the firm has committed an extraordinary amount of capital -- $5.4 billion, to be precise -- to acquireATI Technologies (NASDAQ:ATYT). Check out how these two have warmed themselves to a bonfire of bucks over the years:

Free
Cash
Flow*

2002

2003

2004

2005

TTM

AMD

(825.1)

(274.7)

(353.6)

(30.3)

294.5

ATI

26.8

89.0

164.3

53.8

(69.3)

Combined

(798.3)

(185.7)

(189.3)

23.5

225.2
Source: Capital IQ
*Numbers in millions of dollars

When Apple bites back
But that's the past, right? AMD's Opteron processor has positively pulverized Intel in the server market. And now that Dell (NASDAQ:DELL) has agreed to start dating AMD, its market share could grow even more.

If only that mattered. I'll refrain from reciting the numerous problems Dell faces. Instead, I'll pose this question: What is Dell's competitive advantage? Price, born from efficiency in its build-to-order supply chain. Now, where do you think those efficiencies are gained? If your answer is "on the backs of suppliers," you're at least half right.

Dell is struggling so badly with margins that AMD will have to offer deeply discounted chips to gain the market share it wants. And that's entirely independent of any price war with Intel. Once CEO Paul Otellini decides that he'd rather not let his longtime PC partner go so quietly into the night, the war of attrition will escalate.

Meanwhile, Intel sells to both Dell and Apple (NASDAQ:AAPL), which has officially transitioned its entire product line to the well-received Core Duo chips. And guess what? No price war! Intel gets to sell into a fast-growing market where margins are at least reasonable, and maybe even healthy. AMD's only similar crutch is Opteron in servers.

Is playing catch-up really that difficult?
But that may not last. Now, wait. Before you write that hate mail that bemoans Intel gluing two dies together to get to quad core quickly, or that praises the well-understood virtues of AMD's HyperTransport protocol, or that ridicules Intel's chips for producing more heat than your fireplace, please remember that I'm not saying that AMD lacks a technical advantage.

In fact, I believe AMD does have a meaningful edge now that could widen over time. But "could" is the key word here, Fool. How good is the open processor push that AMD unveiled last month to industrywide acclaim? Wonderful ... if others take the bait and produce co-processors that enhance AMD's offerings as meaningfully as pundits believe. Of course, they may not.

Meanwhile, Intel works with at least as many partners and has money to burn -- $9.4 billion after debt, to be precise. AMD, on the other hand, has $2.5 billion of net cash in the bank, all of which will disintegrate with the purchase of ATI. (Though, to be fair, AMD is getting generous terms for debt, which it will use to replenish its coffers.)

The Foolish bottom line
I'll be honest. I favor neither AMD nor Intel. I think they both make for lousy investments right now because of the inherent risk created by a revenue-destroying and cash flow-eating price war. There's simply no margin of safety in a market where margins are thinner than Nicole Richie and rarer than a moment of lucidity from former Simple Life pal Paris Hilton. Consider yourself warned.

Intel is a Motley Fool Inside Value selection, while Dell is both an Inside Value and Stock Advisor pick. Ask us for anall-access passto the service, and you'll be privy to chief advisor Philip Durell's best picks, which are collectively beating the market by more than 5% as of this writing. You'll also receive instructive lessons on valuation and company analysis. Give Inside Value a tryfree for 30 days.

Think you're done with the Duel? You're not! Go back and read the other three arguments, vote for a winner , and share your opinion at Motley Fool CAPS .

Fool contributor Tim Beyers owns LEAP options in Apple, which he's rated to outperform the S&P 500 in Motley Fool CAPS. What's your take?Get in the gamenow. For more about Tim's portfolio, check his Foolprofile. The Motley Fool'sdisclosure policyis almost as good as a bowl of warm chips and freshly made, cold salsa.