AMD & ATI: The Acquisition from all Points of View
by Anand Lal Shimpi on August 1, 2006 10:26 PM EST- Posted in
- CPUs
It has now been over a week since AMD dropped the bombshell that it would be seeking to acquire ATI in a massive $5.4 billion dollar deal to be closed sometime in Q4 of this year. Regardless of each company's current position in the market, the AMD/ATI merger has the potential to completely re-write the face of competition and a number of markets we cover on a regular basis. It's a tremendous gamble on AMD's part, especially considering that much of the deal is in borrowed cash. Whether this deal ends up being the smartest move AMD ever made or the beginning of the end has yet to be seen, and honestly at this point it's far too early to predict what will come out of it should the acquisition go through.
While predicting isn't our forte to begin with, what we can do is present you all sides of the story. We'll take you through the perspectives of AMD and ATI as well as NVIDIA and Intel, and conclude with a bit of our own analysis on the entire situation. We'll start off with a bit of background information on the acquisition:
- AMD plans on acquiring ATI for a total of $5.4 billion dollars in a mixture of cash and stock. AMD will use $4.2 billion in cash ($1.7 billion currently on hand, and another $2.5 billion borrowed) and 57 million of its shares to pay for the deal.
- The deal will close in the next 100 - 120 days, finalizing it near the end of 2006.
- AMD isn't disclosing under what conditions it would walk away from the deal.
- According to AMD's Hector Ruiz, AMD is partnering with ATI to develop "integrated silicon where it makes sense".
- AMD has no intention of blocking or prohibiting the sale of ATI products to anyone, but neither AMD nor ATI is counting on things like ATI Intel chipset sales continuing going forward.
- Current ATI roadmaps over the next 6 months will remain unchanged.
- ATI's manufacturing arrangement (mainly ATI being a fabless manufacturer) will not change for the next 1 - 2 years. The current production models will remain as-is.
- AMD doesn't believe that NVIDIA will alter its relationship with AMD; NVIDIA believes the same.
- Intel has not revoked ATI's bus license and has not made any public changes to its cross-licensing agreements currently in place with AMD and ATI.
With the backdrop set, let's kick things off by looking at the merger from AMD's perspective.
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HopJokey - Wednesday, August 2, 2006 - link
I beg to differ. It gets old after a while:(
Regs - Tuesday, August 1, 2006 - link
The distant future looks good. Though we yet to see any more green slides about new core technologies from AMD. It almost seems AMD will be making baby-steps for the next 5 or so years to try to compete with the performance Intel is now currently offering.For stock holders - lets just hope AMD can pull something off to gain revenue from other markets with the help of Dell and ATi. Their growing capital and recent acquisition need some definite profits to pay it off.
AnandThenMan - Tuesday, August 1, 2006 - link
I think it's fair to say the article has a very strong pro Intel and NVIDIA slant. For starters, it needs to be pointed out that ATI is actually the #2 graphic maker, not NVIDIA. Saying that NVIDIA is #1 in the desktop space is only part of the market, so why state it that way? Trying to make NVIDIA look good of course...And this:
This statement is just dumb. Unless the planet is destroyed by an asteroid, the deal is pretty much done. It is HIGHLY unlikely that the deal will not happen.
defter - Wednesday, August 2, 2006 - link
The desktop market is very important market since most of the profits are made in the high-end desktop market.For example ATI has much bigger overall marketshare than NVidia (27.6% vs 20.3%) and has lot of presense in other markets (consumer electronics, handhelds). Still, NVidia has bigger revenue, meaning that ASP of NVidia chips is much higher.
If you look at profits, the difference is even bigger, during the last quarter, NVidia made three times as much profit as ATI. Thus high-end desktop market is definitely very important.
Here are some GPU market share numbers for Q2:
http://www.xbitlabs.com/news/video/display/2006073...">http://www.xbitlabs.com/news/video/display/2006073...
PrinceGaz - Wednesday, August 2, 2006 - link
Most of the profits are not made in the high-end desktop market, in fact the very high end probably struggles just to break even due to the relatively tiny number of units shipped compared to development costs. Most of the money in discrete graphics is actually made in the low-end discrete graphics segment, cards like the 7300 and the X1300.
defter - Wednesday, August 2, 2006 - link
This is like saying: "most of the revenue is made on $100 CPUs instead of FX/Opteron parts..."The revenue can be higher on the low end of the market. But GPUs like 7300/X1300 are selling at $20 or less, profit margins for those can't very high. High-end chips like 7900/X1900 are selling for about $100 and the margins are much higher. (Compare the die size between 7900 and 7300, the difference isn't THAT big).
JarredWalton - Wednesday, August 2, 2006 - link
Hey, I'm a skeptic and you can blame me for the comment. Still, until the deal is well and truly done we have a proposed merger. Government interference, cold feet, whatever other setback you want... these things can and do happen. Do I think the deal *won't* happen? Nope - no more than I think the deal *will* happen. If you had asked me three months ago when I first heard the rumors, I think I would have been about 90% sure it wouldn't happen, so obviously I'm less skeptical now than before.As for NVIDIA and Intel slant, the NVIDIA perspective is their view. That doesn't mean it's correct, any more than the ATI, AMD, or Intel perspectives. However, ATI is #2 for the same reason Intel is #1: integrated graphics, specifically on laptops, and again we're talking about the underpowered, mediocre kind that will choke on Vista's Glass GUI. Wipe out all of the low-end GPUs, and NVIDIA has a clear lead in the market. Not in performance, necessarily, but in mindset and brand recognition? Definitely. We are an enthusiast website, and so we're looking at the stuff that moves the market forward, not just what suffices to run office apps.
AnandThenMan - Wednesday, August 2, 2006 - link
Being #1 in one market is not good enough anymore. NVIDIA NEEDS to be in the integrated graphics sector, the ultra thin mobile sector, the console market, the HD devices market etc. etc. This is where ATI is much more diverse than NVIDIA.
The article is about the implications of AMD/ATI and how it affects Intel, NVIDIA, and the whole industry. I understand what you are saying about the discreet enthusiest market, and naturally this is the most interesting and desirable segment we all like to talk about. But the merger is about much more than that. IMO, NVIDIA has to re-invent itself to be capable of taking on AMD/ATI. NVIDIA has come out and bragged about how they are not the "last man standing" but this is marketing spin at best. NVIDIA is on the record years ago as saying they want to "be where ever there is a pixel" but honestly, AMD/ATI is far better positioned to deliver this than NVIDIA IMO.
defter - Wednesday, August 2, 2006 - link
Care to elaborate? NVidia is doing fine financially, why it NEEDS to be strongly present on those sectors?
NVidia has been in the console market since 2001.
Calin - Wednesday, August 2, 2006 - link
NVidia IS in the integrated graphics sector - if you are referring to the "enthusiast" integrated graphic sector