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Advanced Micro Devices (AMD) soared to a new annual high Thursday morning after the chipmaker settled its antitrust case against rival Intel (INTC). Under the terms of the agreement, Intel will shell out $1.25 billion to AMD, and will abide by a new set of rules for conducting business. The pact also includes a renewed cross-license agreement between the two chip titans.
In prepared comments, AMD CEO Dirk Meyer called the settlement a game-changer. "We are optimistic that it will usher a new era for our industry," he said. "We recognize that it will take time for people to understand how the operating conditions in the processor business have changed. But make no mistake -- they have changed."
AMD was sufficiently upbeat about the terms of the settlement that it agreed to drop all pending litigation against Intel, including one case in Delaware and two in Japan. The victorious chipmaker also said it will withdraw its regulatory complaints worldwide.
As a result of the settlement, Intel hiked its fourth-quarter spending forecast from $2.9 billion to $4.2 billion.
Wedbush Morgan analyst Patrick Wang noted that the deal is a big win for AMD investors. "AMD's liquidity issues are going to be taken away," he observed. "This is something that is going to take away a major overhang for investors."
AMD surged roughly 27% on the heels of the news, tagging a new 52-week high of $6.73. The stock is now positioned north of technical pressure at the $6.50 level for the first time since June 25, 2008.
With the shares on the upswing, option volume has exploded to about 19 times the usual level on AMD. Most active is the equity's November 7 call, where 15,423 calls have traded on open interest of 11,506 contracts. In other words, it looks like speculators are adding new positions at this narrowly out-of-the-money strike.
Elizabeth Harrow is a senior equities analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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