Advanced Micro Devices ( AMD) shares slid nearly 7% on Monday after a pair of downgrades from Wall Street analysts. In advising investors to sell AMD stock, ThinkEquity Partners analyst Eric Ross said the first shots of a brutal price war with Intel ( INTC) had been fired. According to Ross, Intel began slashing prices in the last few days in a bid to regain market share "or at least stave share losses." "AMD is in a no-win situation: follow Intel down the pricing war path (and retain share) or keep pricing stable (retaining margins, but losing share). Unfortunately for AMD, both decisions lead to a lower stock price," wrote Ross. While Ross believes AMD's technology is superior to Intel's, he "reluctantly" downgraded the stock from a buy rating to a sell because of the short-term impact of the pricing environment. (ThinkEquity Partners makes a market in Intel securities.) In midday trading Monday, AMD's stock was off $2.56 to $34.07. Shares of Intel, which
lowered its quarterly financial targets by $500 million earlier this month, were down 7 cents, or 0.4%, to $19.78. The moves come a few days after Intel hosted its developer conference in San Francisco, at which it showed off its new chip microarchitecture and a trio of new dual-core processors at the center of its plan to regain its footing. Though Intel is by far the world's dominant supplier of PC microprocessors, the popularity of AMD chips has enabled the smaller company to gain market share over the past year. According to Punk Ziegel analyst JoAnne Feeney, who downgraded AMD to accumulate, Intel's transition to its new generation of microprocessors is behind the company's recent price cuts. While it's not unusual to clear out inventory of older products with price cuts, she believes that sluggish demand for desktop PCs may push Intel to make even deeper price cuts as it seeks to flush out its stock of single-core desktop chips. But Feeney, whose firm has provided investment-banking services to AMD in the past 12 months, said she doesn't think Intel will take its pricing tactics to its new line of high-end processors. "Since the high-end buyers discriminate more on quality than on prices, we do not see Intel succeeding with a strategy of predatory, across-the-board price cuts," wrote Feeney. "Rather, we see a short-term attempt to clear inventories of low-end chips in advance of its new Core product line release."