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CNBC's Goldman: Why AMD Shares Were Hammered

Shares of Advanced Micro Devicesdropped 11% today after the company said lower prices would hurt its profit outlook. Subsequent downgrades from the major brokerages propelled AMD into becoming one of the most actively traded stocks today at the NYSE today. But there's more behind this precipitous drop than weak numbers. What's really going on? On today’s “Closing Bell” CNBC’s Silicon Valley Bureau Chief Jim Goldman found out.

AMD appears to be dealing with a double whammy today, not just from the bad financial news, but how the company disclosed it, said Goldman.

Here’s what happened. AMD Shares took it on the chin after yesterday’s late-night warning that revenue would be up about 3% sequentially, but profits and margins would take a beating because of the ongoing price war with rival Intel .

To make matters worse, AMD waited until 8 pm Eastern to release the news when most big tech investors were heading back from the big Consumer Electronics Show in Las Vegas.

As you might expect, support went south with downgrades today from Citigroup, Prudential, Morgan Stanley, and Bear Stearns.

This has been a bruising year for AMD, which can't seem to catch its breath against Intel.

Many say Intel's chips are much better positioned to take advantage of this year's shift, on consumer and corporate PC’s to Microsoft's Vista Operating System.

The area of key concern is the server chips,” explained John Lau of Jeffries and Co. “We had indicated that prices for the server chips in AMD had declined between 20% and 45% (month over month) about a month ago. And this has severely impacted AMD going forward for the December quarter.”

While most investors see this as a time to exit the chipmaker other see it as a buying opportunity in disguise. Doug Freedman, Managing Director at American Technology Research has a “Buy” on the stock.

“I see a lot of leverage in the operating model and I think analysts on Wall Street are largely looking for the company to not make any strategic changes in their investments, and the way in which they’re attacking the market," said Freedman. "I think that’s going to be required and I believe we’re closer to the bottom than (investors think).”

“The biggest issue I think we’re facing is that AMD’s products have grown a little stale," he continued. “So the key is going to be their new products, most importantly Barcelona, which is their server chip that will be out mid year and how that holds up against Intel. Until we really know what those specs look like and the performance of those products it’s very hard to make a call that things are going to get materially worse going forward.”

Paul Meeks, Fund Manager and Managing Director at NMH Advisors agrees. He said “In the short term, this miss they just reported, a 26% revenue miss… is just hideous…. (but) in the long term I do like AMD right here.”

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Analyst Disclosure: Paul Meeks does not own shares of INTC or AMD.

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  • With almost 30 years experience in business television, Bill Griffeth is co-anchor of the 3 p.m. ET hour of CNBC's "Closing Bell."

  • Kelly Evans

    Kelly Evans is co-anchor of CNBC's "Closing Bell."

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