AMD Shares Hit Five-Year Low

The fall comes on fears of softening chip demand and pre-earnings jitters.
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(Editor's note: Come see Alexei Oreskovic at the Money Show in San Francisco. Alexei will be speaking to attendees on Friday, Aug. 8 at 6 p.m. His seminar is titled: "Chip Shots: How to Play With Volatile Semiconductor Stocks.")

Advanced Micro Devices

(AMD) - Get Report

shares have fallen to their lowest level in more than five years.

In midday trading Thursday, the chipmaker's stock slid 3% to $4.90, the first time it has been below the $5 level - adjusted for splits - since February 2003.

The slide comes a week before AMD is due to report earnings, and caps several days of declines amid fears of softening demand for the PCs that use AMD microprocessors.

"There's been a lot of sell-side calls talking about general PC lethargy," says Stifel Nicolaus analyst Cody Acree. "We've had some recent data out of Taiwan talking about some order slowdowns."

Intel

(INTC) - Get Report

, the world's No.1 maker of microprocessors is also feeling the heat, with its stock down nearly 13% in the past month.

Acree, who rates AMD a Buy, believes the sell-off is overdone. The PC market is in the seasonally slow summer period, before the positive impact of the back-to-school season can be seen, he notes.

And the market is not giving AMD credit for the graphics side of its business, in which its ATI division is taking market share from rival

Nvidia

(NVDA) - Get Report

,.

Last week, Nvidia slashed its sales forecast for the second quarter, citing competitive price pressures as well as weak global demand. Shares of Nvidia have plunged about 34% since its negative earnings pre-announcement.

"You're not getting an $11 stock in Nvidia unless AMD is doing something right," says Acree.

AMD is due to report its second quarter on July 17. Analysts polled by Thomson Reuters expect the company to post a net loss of 51 cents a share on sales of $1.45 billion.

While pre-earnings jitters are no doubt affecting AMD's stock, one hedge fund manager says the shares are also simply reflecting the grim nature of the overall market. On Wednesday the S&P 500 index declined to 20% from its peak.

"I think honestly you've got a lot of funds in big trouble and they're winding up positions, making some pretty nasty

stock moves in both directions," says the hedge fund manager.

Adding fuel to the fire are the stop-loss measures in many funds charters, which he said forced them to sell certain stocks if shares decline by a certain level, such as 20% or 25%.

"I'm doing that today with a lot of names I don't want to sell," he says.

AMD's stock is down 70% from its 52-week high of $16.19.

A slew of self-inflicted problems, including delays in releasing its Barcelona microprocessor last year, as well as intense competition with Intel, have wreaked havoc with AMD's financials and pounded its stock price.

With the Street still waiting to see the first signs of progress from AMD's turnaround efforts, the stock's new low could represent either an attractive entry point or another milestone in a long slide.