AMD Has Fallen and It Can't Get Up

"By the middle of next year, they've got to have units shipping and some OEMs under their belt, though they may not get a top-tier OEM 'til the second half of next year," says Kevin Krewell, general manager at Instat-MDR. Possible customers include Sun, IBM, Fujitsu, NEC and the big cheese, Dell, which has reportedly said it's looking at the chip. (H-P isn't likely to be a big customer, because it's partnered with Intel on developing Intel's Itanium chip).

In an unexpected coup, AMD also won a pledge from Microsoft to design software to support the Hammer's 64-bit architecture (a technology that effectively processes more data at a faster rate). But Microsoft hasn't yet set a schedule for the software to be introduced.

Playing in a Rough Neighborhood

In the meantime, at least until the Hammer lineup starts to show up on the income statement, analysts expect AMD to sustain further market erosion. Picture the skinny kid who gets shaken down for lunch money in the playground: That's AMD giving up share to Intel (INTC Quote), which seems to keep getting tougher. For a rough profit comparison, look no further than gross margins: In the most recent quarter, Intel claimed 49% to AMD's 11%.

In the past two quarters, AMD has lost around 4% or 5% of share in the microprocessor market, now claiming only about 12% to 13% of the market. UBS Warburg's Thomas Thornhill expects those losses will continue, albeit at a slower pace. "Even in our best scenario estimate, it is unlikely that AMD will recoup the market share loss in 2003, and perhaps in 2004," he says in a note.

Thornhill rates AMD shares sell, with a price target of $5 -- implying some 25% downside from current levels. His firm hasn't done any banking for AMD.