AMD Shares to Gain 8 Percent After IBM Takeover Rumors

Advanced Micro Devices had its shares suddenly rising eight percent due to rumors alleging it will be purchased by the IBM consortium. Although market analysts estimate that the chances of the "Big Blue" taking over the chip manufacturer were slim, spokespersons of both companies refused to comment upon the rumor.

World's second largest x86 chip manufacturer witnessed its shares adding 55 cents to the initial $7.39, and raised 23 cents (3.4 percent) in the afternoon trading. "The takeover of AMD by IBM has been mentioned before and with AMD shares being so low, it might be a good time for IBM to acquire them," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.

IBM has recently signed a R&D agreement with chip manufacturer AMD for researching and developing the 32-nanometer technology that is supposed to power the companies' upcoming chips. This agreement led to speculations alleging that AMD would be interested in using IBM's East Fishkill, New York, chip-fabrication plant to manufacture its own processors.

"IBM taking over AMD would be a pretty low-probability event because IBM is moving away from hardware and manufacturing and moving to software and solutions," said Ashok Kumar, an analyst at CRT Capital Group. "I don't think IBM wants the bragging rights to go up against Intel."

However, IBM is trying to stay away from the hardware business, in order to focus on customized software and technology services. Recently, the company has acquired the AptSoft corporation to increase its presence on the processing software market.

"IBM buying AMD is a nonstarter," Kumar said. "There's no rationale for that. Investors would just pound IBM's stock."

IBM's revenue in the microelectronics business fell 15 percent during the fourth quarter of the last year, and the "Big Blue" is currently producing chips for its mainframe computers and business server systems. "An acquisition of AMD would destroy shareholder value for IBM," Kumar concluded.