ATI Technologies plummets right onto the watch list...

Back on August 15, Cramer discussed a Canadian 3D graphics chip manufacturer on his radio show. Here's the recap:

Sam from Northwest asked about the halo effect from Xbox and flat-panel televisions on ATI ( ATYT). Cramer answered, "When I look at situations where I talk about tech and why I want to be in it, I'm thinking about companies like ATYT." The fact that it's at a 52-week low looks like an opportunity to Cramer, who said ATI should be bought. As a company with a mixed record, it's not a high quality company to Cramer by any means, but he said, "It shouldn't be this low. I would buy it for a trade."

Cramer's been advocating a tech rally in the second half of 2005, saying that there is an exciting new product cycle on the horizon. While I tend to think about high quality companies with products I use, like Apple (AAPL) and Google (GOOG) with their wonderfully addictive Earth application, I also want to find smaller, less obvious players. ATYT seemed like a good combination of tech plus low price.

ATYT has continued downhill since August 15, helped by a shareholder lawsuit. I was about to look more into this company when this news hit:

ATI Technologies cuts 4Q forecast
Chipmaker expects inventory write-down of $60 million

By Scott Banerjee, MarketWatch
Last Update: 6:31 PM ET Aug. 29, 2005

SAN FRANCISCO (MarketWatch) -- ATI Technologies Inc. said after the market close Monday that its fiscal fourth-quarter revenue would come in substantially lower than previously forecast as a result of slow sales for desktop computer chips and a sizable inventory write-down.

The graphics chipmaker cut its fourth-quarter revenue forecast to a range of $465 million to $480 million, compared with its previous forecast of $550 million to $680 million. Analysts surveyed by Thomson First Call were expecting revenue of $560.9 million.

The news sent shares of Markham, Ontario-based ATI down 12.6% to $9.90 in after-hours trading.

ATI (ATYT: news, chart, profile) said its desktop product line sales slowed, both in units and average selling prices.

The company expects an inventory write-down of $60 million to $70 million, and its gross margin percentage to fall into single digit range from a previous prediction of 29% to 30%.

ATI also said operating expenses, excluding stock-based compensation costs, are expected to be in the range of $143 million to $148 million. The company did not offer a revised earnings forecast. Analysts had previously expected a profits 7 cents a share.

ATI will be providing the graphics processor units for the Xbox 360 video game console from Microsoft Corp. (MSFT: news, chart, profile), due out on shelves this holiday season.

The after hours trading was as brutal as one would expect, taking the stock down a dollar from $11.34 to $10.34.

This is wonderful news. Notice, the news report says that ATI will still be putting chips into the new Xbox. Cramer though this stock was cheap at $12. Since I have both time to see where this stock goes and time before new Xbox sales affect this stock, ATYT has just plummeted right onto the watch list.