AMD in The News Again

This week, AMD moved to buy ATI Technologies, which manufactures chips for PC graphics, plus other accessories which may be integrated into chip sets.

On the plus side, the move helps AMD position itself as unique, vis a vis Intel, because the latter will not have a captive graphics chip maker. On the negative side, analysts are wondering if AMD can successfully handle its burgeoning price war with Intel, while integrating ATI and investing in both itself and its acquisition, to realize the long-term benefits of the combination.

What I find heartening about AMD's move is that the management evidently understands that it must "ride the tiger." Having made the moves to take on Intel and surpass it in growth, it now is planning to cement that lead.

Will it work? Who knows? This is where consistently superior prior performance makes a difference, and right now, AMD does not seem to be there just yet. Its stock price performance has been uneven, versus the S&P, over the past five years. Only recently has it turned upward, outperforming the index. In the last five years, only two look to have seen AMD outperform.

Thus, its track record of surprising the market with results is not yet well-established.

I think, fundamentally, the ATI move is probably a good one. Not that this means I think it will work. I just think that, as I understand their situation, they needed to do something like the ATI acquisition to keep the pressure on Intel, and place their bets for future positioning.

It should be an exciting next few years, watching to see if AMD can decisively outgrow Intel, as well as earn consistently superior total returns while doing it.