''We were surprised to see AMD shares rally yesterday given what we believe to be increasing concerns about cash flow at the company,'' analyst Doug Freedman of American Technology Research Inc., in a report on Thursday (Feb. 15). The analyst issued a ''Sell'' on AMD's share with a price target of $12.

''When we polled clients as to the reason behind the strength we were told that private equity rumors were circulating,'' he said in the report. ''While we do not doubt that private equity is sitting on cash it needs to put to work, we have a hard time seeing how it would get involved in AMD at the present valuation.''

Still, AMD (Sunnyvale, Calif.) needs cash amid a bitter price war with Intel Corp. (Santa Clara, Calif.). ''In the meantime we think management will be forced to come to the capital markets for operating cash before the end of the summer,'' he said.

There are other bad signs for AMD. ''We see Michael Dell's return as CEO at Dell as a negative development with strong ties to Intel,'' he said. ''OEM relationships are straining to stay engaged with AMD at this time given its stale product line-up. We continue to think AMD needs to get new products out to regain a competitive stance.''

AMD did not comment on the report. "AMD does not comment on rumors or speculation,'' a company spokesperson said.

It's not all doom and gloom for the company. AMD took its largest slice ever--25.3 percent--of the X86 market in the last quarter of 2006, according to a report released by PC market watcher Mercury Research.

But now, Intel in recent months has regained its groove and is gaining ground with a string of quad-core processor releases, a new relationship with Apple, and, most recently, new inroads with Sun Microsystems.

Recently, AMD reported fourth quarter 2006 revenue of $1.77 billion, an operating loss of $527 million, and a net loss of $574 million, or minus $1.08 per share. In the previous period, AMD posted a profit of $119 million on sales of $1.328 billion. The company reported a profit of $268 million on sales of $1.351 billion a year ago.