Advanced Micro Devices Inc. (NASDAQ: AMD) today proved that its not immune to pricing wars with Intel Corp. (NASDAQ:INTC) caused by the decline in the PC market, posting a bigger-than-expected first quarter loss.

Advanced Micro CEO Hector Ruiz said the company may undertake an "asset-light" strategy (outsourcing chip production), mimicking chip makers including Broadcom Corp. (NASDAQ: BRCM) Texas Instruments Inc. (NYSE: TXN) and Marvell Technology Group Ltd. (NASDAQ: MRVL), which outsource their production. The move is understandable.

The company had a first-quarter net loss of $611 million, or $1.11 a share, compared with a net profit of $184.5 million, or 38 cents a share,a year earlier. Sales fell to $1.23 billion from $1.33 billion a year ago. Analysts were expecting sales of $1.2 billion and a loss of 48 cents a share.

AMD's lackluster results were due to PC price declines (which means chip declines) and a slowdown in its server chip business. The company is weighing a major restructuring aimed at reducing future spending. No details on possible layoffs or specific cost-cutting measures were mentioned.

Though Intel sold less product than it hoped in the first quarter, its profits still were in good shape after an accounting change for taxation purposes and a few other details. It looks like Intel was able to use its larger size to "beat up on" on Advanced Micro.

With Intel's (NASDAQ: INTC) quarterly results being released yesterday, its closest competitor is yet again on the ropes as Intel pounds it ceaselessly. Intel and AMD have locked themselves in fierce pricing battles for almost a decade, but the constant leapfrogging each company has had in terms of technology prowess and price cutting were bound to take a heavy toll on both companies.

Intel announced a reorganization and a massive layoff last year. Advanced Micro Devices (NASDAQ: AMD) has -- twice -- readjusted its quarterly guidance for the current quarter based on a fiercer-than-fierce pricing battle with Intel in the last six months or so. AMD is now stating that first quarter sales will come in at roughly $1.225 billion after analysts and investors were expecting $1.55 billion (already down from a $1.7 billion expectation in January). AMD will also be cutting about $500 million in 2007 capital expenditures. Summary: not good news for AMD so far this year.

What can the chipmaker do? It's renewed focus on cutting costs probably means to Intel that AMD will relieve some of the pressure on price cutting on its chips, which will allow some price stability for both companies in 2007. AMD's strategy to constantly steal market share has come at a price (profits). Now the chipmaker may want to return to making profits and settle for less market share. Hey, even if you have 50% of the market but are not making a penny, what's the point, right?

Is Dell, Inc. really in that bad of shape? Some in the market seem to think so, as Dell, Inc. (NASDAQ: DELL) shares were downgraded from "buy" to "neutral" today by American Technology, who pointed out that the world's largest computer manufacturer is feeling the heat from industry competitors like Hewlett-Packard Company (NYSE:HPQ) and Apple Computer, Inc. (NASDAQ:AAPL). I'm not so sure I buy the Apple argument (its marketshare is low and its computer prices, high), but I'd agree HP is causing much of Dell's grief these days. Add a resurgent competitor to the mix and some public foibles from Dell recently -- like the huge laptop battery recall -- and Dell has an uphill climb in front of it.

Analysts at American Technology published a research note published on Tuesday that referenced Dell's recent ramp-up of AMD-based computers -- which was termed as "weak" by the analysts. While I am not sure how they are measuring this, a quick look at Dell's web site prominently features many systems (mostly desktop) with AMD processors are excellent prices -- not looking to "weak" to me in light of that. AMD was finally introduced as a processor chip supplier to Dell just this year after Dell's entire history being based on Intel processors, and now the company is basing an entry-level Dimension E521 desktop computer, with only AMD chips available, starting at just $329.

One thing that does seem apparent and is a good reason to change Dell's share rating has to do with its margins and revenues being likely squeezed due to increasing competition from HP and even Lenovo -- both of which have Chinese operations and both of which can now churn out custom-based systems with similar costs as Dell. In other words, Dell's "build to order" platform is becoming less relevant these days. On a good side for Dell, though, the company's share price has appreciated by 10% over the last couple of weeks.