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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leexgx - Wednesday, August 2, 2006 - link
i have only seen integrated graphics on nvidia based chip setsMost on board vdeio is VIA/s3 or sis integrated graphics (intel chip sets been intel video)
Calin - Thursday, August 3, 2006 - link
ATI RS480, RS482 and RS485 are in this game too (chipsets with integrated video). They were plagued by southbridge problems - slow USB performance mainly, and lack of features (like SATA 2). Whether or not this was detrimental to them, I don't know.(you can find mainboards with ATI integrated chipsets from MSI and ECS)
JarredWalton - Wednesday, August 2, 2006 - link
I agree with that. I think NVIDIA's comments are far more bravado than actual truth. However, if they can convince investors and consumers that they's "won the GPU war", it may not matter.My big problem with the deal: I don't know what AMD is doing spending $5.4 billon on ATI. Not that ATI is bad, but that's almost two new fabs. That's a lot of talented engineers making a lot of money for several years at least. I think ATI would be insane to not take the offer, but I feel AMD is almost equally insane to make the offer in the first place.
Furen - Wednesday, August 2, 2006 - link
AMD is borrowing the money to buy a viable, self-sufficient company. Convincing banks to let you borrow money for two fabs that will help you out 3+ years down the line is not very easy, especially considering that most people seem to think that AMD's growth is slowing down. Heck, having two extra fabs in 3 years could mean that AMD will just have lots of extra capacity with no use for it. Also, $5.4B for ATI is dirt cheap. Well, maybe not dirt cheap but undervalued considering that its portfolio rivals or surpasses nVidia's in many ways.AnandThenMan - Wednesday, August 2, 2006 - link
It is a big gamble for AMD, no doubt. A make-or-break deal in fact. But I would hope that the top brass has carefully considered the costs and the future markets/profits/advantages. With any high stakes game, the rewards are spectacular, but the cost of failing can mean you're history.
I suppose having new fabs does you little good if you can't offer a platform to the Dell's and HP's out there. There is no doubt in my mind about one thing, AMD is aiming straight at Intel's integrated platform approach.
Calin - Wednesday, August 2, 2006 - link
AMD is trying to get in the game of long-term selling. The corporate computers initiative they had some years ago (or maybe a year ago) was a first step - "freeze" a computer configuration, which you can then offer for a long time (like 3 years). If a computer breaks, move its hard drive in a new computer in the same line, and have everything working with GUARANTEED no problems.AMD did good in taking over the enthusiast market by storm - but this market has NO loyality whatsoever - people will upgrade everything they need and everything they don't in order to get the next big thing. Having a guaranteed revenue of mostly guaranteed value beats that (having an non-guaranteed revenue of big or small value, like it happens now).
AMD is much more ready to go in the corporate market - selling desktop computers, not just servers as it did until now.
Also, take into account that if AMD is behind in the "next big thing" (whatever this might be), it really does not have the money to play catchup. Intel has both the money and the market inertia to continue to be a big player when everything else is against its products. So, AMD is puting its future on a bet that the next big thing will be core-integrated graphics. If this works, they would reap huge benefits - just like they were able to with the Athlon64 on desktops/Opteron on servers (and somewhat Turion on mobiles). Before the Opteron days, AMD was largely inexistant in server space (the Athlon MP started to make a buzz, but they had little market share).
Will the money have been better spent on two fabs? AMD and ATI are both using external partners for creating chips, and this is more expensive only in the long run. In the short run, paying more for chips beats paying 3 billions to have your fab ready in three years. I figure the use of external fabs will continue long time in the future, and just the top of the line products will be built on AMD's fabs.
darkdemyze - Wednesday, August 2, 2006 - link
You say AMD doesn't have the money to play catch-up, and this is true that the whole deal is "a bet." But how else is AMD supposed to catch up? With C2D being released? Intel is going to have a huge impact on the performance sector by the end of the year - about the same time this merger is projected to be completed. What I mean by this is Intel is now ahead of the curve on AMD with this new architecture and according to their "new architecture every 2 years" roadmap, and Intel intends to not let the performance crown slip again as they did with Pentium4.
So what is AMD to do to keep up? As you said, place a bet on "the next big thing" and hope for the best. I'm not discreditting AMD for K8L, or Torrenza for that matter. But I think at the very least Torrenza will be greatly effected by this endeavor. Personally I feel this is a very positive aquisition.
Calin - Thursday, August 3, 2006 - link
K8L is just a few months from launch, and it might get AMD to performance parity with Intel (or exceed Core 2 Duo, or be left behind). I am hoping for a draw or a win for AMD.What AMD needs is a cash cow (as Athlon64 was until now). Will the ATI acquisition bring this to table? It could very well be so, and there are enough niches and market slices where this strategy is a winner.
Unfortunately, this might (or might not) reduce the competition in high-end video cards arena...
Nelsieus - Wednesday, August 2, 2006 - link
I strongly disagree with you.This, thus far, has been the best summarization coverage I've read on this issue.
PeteRoy - Tuesday, August 1, 2006 - link
AMD did not have it's own chipset with integrated graphics, audio and lan which is why it never made it to the offices where the big money is.