Report: Bad economy could leave AMD belly up

We've heard whispers from the rumor mill that AMD may be planning to cut part of its work force in the near future, but the situation may turn out even worse for the chipmaker if the economy continues to sour. According to financial analysis website 24/7 Wall St., AMD may be one of several large U.S. firms to go belly-up and be acquired in the event of a "very deep recession," which some analysts believe could start soon and continue throughout 2008 and 2009. Such a recession would make regulatory bodies keener to turn a blind eye to potentially anti-competitive deals, the site says.

24/7 Wall St. ranks AMD fourth in a list of 11 companies likely to keel over along with Ford, Qwest, Sears, Citigroup, Charter, and Wendy's. The site comments that AMD "is not in as bad a spot as some investors think" in terms of strategic positioning, but that the chipmaker is "very badly run." AMD's decision to buy ATI was a huge mistake, the site adds, and the company's balance sheet currently includes a staggering $5 billion in debt—most of which AMD will have to start paying off from 2012 onward with 5.75-6% interest.

Like some other analysts, 24/7 Wall St. says Nvidia would be a likely candidate to bail AMD out. Reportedly, a merger between the two firms would allow Nvidia to cut operational costs by several hundred million dollars and rake in $13 billion in revenue each year, up from the $4 billion it posted for its last fiscal year. However, for a deal to happen, the site believes AMD's share price would have to drop from $6 today to around $3, lowering AMD's market capitalization to less than $2 billion.

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