Proving the rule that large mergers rarely work out as planned, computer chip giant Advanced Micro Devices (NYSE: AMD) will write down $880 million of the purchase cost of graphic chip giant ATI, the company AMD bought over a year ago. Add that to the fact that AMD's product delays have cost it market share, and you can be sure that competitor Intel Corp. (NASDAQ: INTC) has been singing a happy tune lately.

AMD is expected to take $32 million in restructuring costs due to employee severance costs resulting from last September's job cuts, and record a loss of $0.52 per share on revenue of $1.45 billion come tomorrow's earnings release. This would be in line with analyst expectations, but at the same time, may not please investors much. AMD management is also expected to give conservative guidance for the current quarter due to soft seasonality and the overall U.S. economic environment, since so many of its products are consumed here.

AMD really needs to get out a price competitive, cutting-edge processing chip for the laptop PC that can compete with Intel's Core 2 Duo product and the Centrino wireless offering. Laptops are the hottest PC category and AMD is letting Intel have all the fun. Its current dual-core chip lineup just can't compete and requires too much energy to operate. I hope analysts nail down AMD's exact road map and time lines for these products, which it needs if it expects to be competitive at all during the remainder of 2008. Right now, it's not even close.

AMD (NYSE:AMD) had another loss in the third quarter. There was some solace in the fact that it was slightly less than the red ink in the second quarter and that this means that chip price wars may be ending.

Don't count on it. AMD's loss in the third quarter was $396 million, or 71 cents a share. Those figures included costs of acquisition of ATI Technologies of $120 million. Revenue was $1.63 billion, up 23% from the $1.33 billion reported in the year-earlier quarter.

According to The Wall Street Journal "IDC, a market-research firm, estimates AMD accounted in the second quarter for 23.1% of unit sales of x86 microprocessors, the most popular variety of calculating engines for personal computers and server systems -- up from 18.6% in the first period." AMD thinks that those market share numbers got even better in Q3.

And, therein lies the problem. Intel (NASDAQ:INTC) is going to want that market share back. Over the last year, it has indicated that it will use its strong balance sheet to allow it to cut costs on chips to improve its piece of the pie. AMD would have to match those cuts to keep its unit sales high. Gross margins will be hurt.

The news of improvement in AMD's loss may push the stock up, but, at $14.55, its is still down from its 52-week high of $23. With a renewed price war still a real possibility, the share price is not likely to go anywhere.

Douglas A. McIntyre is an editor at 247wallst.com.

We have been blogging positively about Intel Corporation (NASDAQ: INTC) since May. However, with ho-hum results reported last night and recent stock appreciation, it may be time to look elsewhere for profits in the semiconductor space.

Intel reported very solid results but not strong enough to drive the stock much higher from here. As we've been blogging since Q1 earnings release, Intel's revenue and gross margins were about to ramp higher, but from listening to last night's results that growth is going to be muted. The company expects only 6% yoy revenue growth, little improvement in gross margin and free cash flow generation which will be difficult to forecast.

The most disturbing aspect of last night's call was Intel's forecast for flat operating expenditures for 2008. This means Advanced Micro Devices Inc (NYSE: AMD) is proving a more formidable competitor and not going to disappear as it has in the past when Intel has targeted market share. This could mean little-to-no revenue growth for 2008.

Also, stock repurchased during the quarter was a measly $100 million. Not a good number. The combination of massive slowdown in share repurchase and flat operating expenditure guidance means Intel is becoming concerned about its sources and uses of cash.

I would take the profits and move elsewhere. It looks like National Semiconductor Corporation (NYSE: NSM) currently has the best growth profile in the semi space.

With AMD (NYSE:AMD) in a precarious position in the microchip industry, the company said just recently that it will probably miss revenue targets for its first fiscal quarter. AMD's CEO Hector Ruiz dropped the bomb of sorts yesterday at a Morgan Stanly technology conference for investors, which I partially liveblogged when Google CEO Eric Schmidt took to the podium.

Ruiz said that "We didn't do as good as a job as we should have" -- and AMD shares then proceeded to fall about 2% to $13.89 in late afternoon trading yesterday. With AMD having the rumor floating around that it may be a takeover target by a private equity group (or even competitor Intel (NASDAQ:INTC)if you can fathom that), the chipmaker sits on a rickety fence right now. It makes a great line of products and competes very well with market leader Intel -- but with shares so cheap, things could develop on the takeover front.

AMD ended up stating in a press release that it's "unlikely to meet" its previously estimated revenue guidance of $1.6 billion to $1.7 billion for the first quarter -- and analyst estimates were predicting $1.66 billion in revenue before that release was sent to the press wires. The chip industry's customers (computer makers) and end customers benefit from the competition between Intel and AMD, but things could change if Intel was interested in buying its largest rival just to erase a competitor. Expect a move like that to unleash a firestorm of criticism based on "antitrust" measures.