Joe Osha, Merrill Lynch's semiconductor analyst, upgraded his Intel rating to "buy" Wednesday but downgraded Advanced Micro Devices to "neutral."
"Excess manufacturing capacity and competitive pressure from AMD are challenges for Intel," Osha said in a report Wednesday, but "we think the stock price has fully reflected our concerns."
AMD's stock, meanwhile, has risen near Merrill Lynch's target price of $25 per share. "The company continues to take market share in server processors, but is not making any more headway in the notebook or desktop processor markets than we'd expected," Osha said.
Intel is making pricing moves to try to keep AMD from using all the capacity of a new fabrication facility coming on line now in Germany, Fab 36, Osha said. Fab 36 could nearly double AMD's manufacturing capacity by the end of 2006. "It looks to us like Intel and AMD are lining up for a nasty fill-the-factories fight in 2006," Osha said. "We think that it will be difficult for AMD to show processor margins during 2006 that are better than those achieved in 2005, and in fact it's possible that processor margins deteriorate as a result of Intel's efforts."