AMD's Good News Might Not Be So Good

Maybe Advanced Micro Devices (NYSE: AMD  ) isn't dead after all.

Earlier today, Toshiba said it would put chips from AMD in roughly 20% of the laptop computers it sells in the U.S. and Europe. Japan-based Toshiba is the world's fourth-largest laptop PC maker.

The deal is a coup on a few different levels. Two come immediately to mind:

  • It ends Toshiba's exclusive supply deal with Intel (Nasdaq: INTC  ) . (Dell (Nasdaq: DELL  ) struck a similar bargain with AMD this time last year.)
  • It shows that, even with Intel's big pockets, AMD is a potent competitor.

Good for them ...

... But maybe bad for investors. Why? Take a look at the local reporting. According to Japanese business daily Nikkei, Toshiba is buying from AMD to reduce its parts-procurement costs by 10%.

Translation: On this front, AMD won the price war.

Color me skeptical but I've never seen a tech company cut its way to growth and I don't see how AMD can be a dominant global supplier of low-cost chips. Intel has too much money and Asia has too many low-cost fabricators, some of which do business with AMD, such as Chartered Semiconductor (Nasdaq: CHRT  ) .

More disappointing to me, though, is that AMD, with ATI on board, was supposed to create highly functional chips that would compete with Intel on features as well as price. Today's deal with Toshiba offers little evidence of that promise being realized.

And it reminds me of what AMD was before it enjoyed an innovation breakthrough with the Opteron server chip: the junior varsity company that marginal PC suppliers would turn to when they needed to produce a high-powered, low-cost machine. That worked until it didn't. There's no reason to expect better results this time around.

No, AMD isn't dead. But it is still bleeding.

Dip your chips in a bowl of related Foolishness:

High tech. Biotech. Nanotech. Any tech. David Gardner and his Foolish band of analysts cover it all for Motley Fool Rule Breakers subscribers. Together, they've unearthed seven stocks that have at least doubled. Want to find out what they are? Click here now for 30 days of free access to the service. There's no obligation to subscribe.

Intel and Dell are Inside Value recommendations. Dell is also a Stock Advisor pick.

Fool contributor Tim Beyers, who is ranked 4,350 out of more than 29,400 rated players in CAPS, is a sucker for growth stocks and a regular contributor to the Rule Breakers team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Tim's portfolio holdings can be found at his Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy is a chip off the old silicon.


Read/Post Comments (0) | Recommend This Article (28)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 528696, ~/Articles/ArticleHandler.aspx, 12/22/2014 12:54:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement