You are assuming that they'll be able to get out of that downward spiral. Furthermore, you are assuming that they have the cash to absorb such a move. They might of, had they not acquired AMD. HOwever, now they are being squeezed not only by margin decreases, but also by increased debt costs due to the acquisition. Add to that the decreasing margins for GPUs, you get a vice grip squeezing on the entire operation.
The biggest probelm is that when a company such as Intel has deep pockets you can't win by just price, you have to win by price and innovation, like AMD did a few years ago. Intel can just keep prices down, keep innovating faster through massive R&D, and keep squeezing AMD until they pop. Where in that cycle will AMD be able to increase price after they have captured market share?
Furthermore, where will they find reduced costs to make economies of scale profitable? You can't have expensive operations and cheap processors, you have to make profits somewhere, and they are failing.
AMD really had Intel by the nuts, P4 was a horrible mistake on Intel's part and it took them years to catch up. Had AMD chosen the right path they'd still be whupping Intel on innovation, while being able to keep their prices low enough. On a price/performance ratio they would have been set pretty well. However, Ruiz chose the wrong path and is now squandering valuable resources. ATI was a grasping at straws move.
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