AMD shares gain on IBM takeover speculation

A view of the IBM facility outside Boulder, Colorado October 18, 2006. Advanced Micro Devices shares rose as much as 8 percent on Wednesday on speculation that the microchip maker might be bought by IBM, but analysts said the chances of an acquisition were slim.

SAN FRANCISCO (Reuters) - Advanced Micro Devices (AMD.N) shares rose as much as 8 percent on Wednesday on speculation that the microchip maker might be bought by IBM(IBM.N), but analysts said the chances of an acquisition were slim.

Spokesmen for IBM and AMD, based in Sunnyvale, California, declined to comment on the rumor.

Shares of AMD, the second-largest maker of microprocessors after Intel Corp (INTC.O), added as much as 55 cents to $7.39 and were up 23 cents or 3.4 percent at $7.07 in afternoon trading. International Business Machines Corp stock was down $1.73 or 1.7 percent at $99.58 on the New York Stock Exchange.

"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.

AMD call options were trading higher than usual because of the rumor, he added.

IBM of Armonk, New York, has had a research and development expense-sharing agreement with AMD, and analysts have speculated that AMD might want to use IBM's East Fishkill, New York, chip-fabrication plant to build microprocessors.

An acquisition of 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."

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

IBM has been exiting computer hardware businesses to focus on higher-profit software and technology services tailored to clients.

Earlier Wednesday, IBM said it was buying privately held AptSoft Corp to expand its business event processing software portfolio.

Revenue from IBM's microelectronics business fell 15 percent in the fourth quarter. The unit mainly supplies chips to run IBM's mainframe computers and business server machines.

IBM sold its computer disk-drive business to Hitachi Ltd in 2002 and its personal-computer business to China's Lenovo Group Ltd (0992.HK) in 2005. Last year, IBM sold its printer business to Japan's Ricoh Co Ltd (7752.T).

An acquisition of AMD would "destroy shareholder value for IBM," Kumar said. "That argument is a nonstarter."

AMD has said it would give details of its "asset-light" manufacturing strategy sometime this year. AMD currently has a chip fabrication plant, or fab, in Germany and has plans to build another one outside Albany, New York.

Intel, by comparison, has some 12 chipmaking plants across the globe, and its manufacturing prowess has long been a competitive advantage against smaller rival AMD.

Mergermarket.com, a mergers-focused news service, reported on the Financial Times' Web site that IBM and AMD could strengthen their current partnership.

"A deal could see IBM's microelectronics division merge with AMD at some point, possibly in the near term," mergermarket.com correspondent David Zielenziger wrote, citing "industry sources."

(Additional reporting by Doris Frankel in Chicago, editing by Gerald E. McCormick)