AMD's New Notebook Chip Could Have a Bug, Analyst Says

SAN FRANCISCO -- Is Advanced Micro Devices(AMD Quote - Cramer on AMD - Stock Picks) grappling with another bug?

That's the word from a Wall Street analyst, who warned Wednesday that the chipmaker's forthcoming notebook chipset, dubbed Puma, may have a technical glitch.

American Technology analyst Doug Freedman was not specific about the nature of the bug, or which component of the Puma chipset it affected, and he acknowledged that AMD may already have a fix for it. But he said that PC makers are concerned and, he believes, are attempting to find alternative technology for their notebooks.

"We believe the mere potential for a problem with Puma, even if a fix is in the works and the platform is scheduled for an "on-time" launch, will likely have an impact on initial volumes for the [refresh of the notebook product line for the spring]," Freedman wrote in a note to investors.

An AMD spokesperson said the company was not aware of any technical glitches with Puma at this time.

"We remain on track for AMD's commitments from AMD's financial analyst day and we are looking forward to a record number of notebook platform offerings from all key OEM customers in Q2," said AMD spokesperson Suzy Pruitt.

AMD shares were up 4.3%, or 28 cents, at $6.69 in midday trading Wednesday.

The company got a boost on the legal front on Tuesday when European Union antitrust regulators raided Intel's(INTC Quote - Cramer on INTC - Stock Picks) offices in Munich, Germany. AMD has long alleged that its business has been unfairly harmed by Intel's abusive business practices, and the European Commission filed formal charges against Intel in July.

AMD's most recent troubles, however, have mostly been of its own making.

AMD is still scrambling to clean up the mess from a bug that affected its quad-core server and desktop chips. The bug, which AMD disclosed in December, caused the company to delay the general availability of the processors.

A potential new bug would seriously undermine the management team's remaining credibility, and crumble the company's goal of returning to break-even in 2008, Freedman wrote.

In fact, Freedman speculates that the glitch could trigger a sale of the company or a major management shake-up. And he even suggests a potential buyer: Nvidia(NVDA Quote - Cramer on NVDA - Stock Picks).

The graphics chipmaker's CEO Jen-Hsun Huang would not likely leave his company to run AMD, says Freedman. But he might be tempted by the challenge of buying AMD at a discount and turning the company around.

"In addition, we note that the Intel/AMD road-map of integration of the CPU/GPU could pose a risk to Nvidia, and buying AMD propels Nvidia into a formidable competitor for Intel with the upside coming from Huang's ability to re-architect AMD's design," says Freedman.

With Nvidia scheduled to report its quarterly earnings after Wednesday's market close, it's not hard to guess what kind of questions Freedman will have during the analyst conference call.