AMD Buys ATI

24 Jul, 2006 at 7:00am ET Article published in Tech

Comments

1. 
   24 Jul 2006 ~ 10:34am edcentric The take on it from todays WSJ
   
   
   AMD to Buy ATI,
   A Grasp for an Edge Over Intel
   Deal for $5.4 Billion Seeks
   To Extend Company's Reach
   Beyond Microprocessor Chips
   By DON CLARK and DENNIS K. BERMAN
   July 24, 2006; Page B6
   
   Advanced Micro Devices Inc. struck a $5.4 billion deal to acquire ATI Technologies Inc., making a bold bet that it can match and trump one of the biggest advantages of rival Intel Corp.
   
   The companies boards yesterday approved the transaction, and the deal was formally announced today. AMD will pay ATI shareholders cash and stock currently valued at about $20.47 for each ATI share. About $16.40 per share of the consideration -- about $4.2 billion of the total transaction value -- is cash; the remainder is in AMD stock, at an exchange ratio of 0.2229 share for every ATI share.
   
   The purchase price -- one of the largest amounts paid for a chip maker -- represents a premium of about 24% over the closing price of ATI's shares Friday, and about 35% based on a 30-day moving average of the stock, one person familiar with the proposed deal said. AMD, which had about $2.5 billion in cash and short-term securities at the end of June, plans to use debt to help finance the transaction.
   WALL STREET JOURNAL VIDEO
   
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   Advanced Micro Devices CEO Hector Ruiz and ATI Technologies CEO David Orton discuss AMD buying ATI for $5.4 billion.
   
   The long-rumored deal's size and timing may prove contentious, as competition from Intel appears to be taking a toll on AMD's sales growth. But the combination might reshape the battle between the two companies, which now focuses solely on the microprocessors that serve as electronic brains in computers.
   
   ATI, of Markham, Ontario, is best known for chips that handle PC graphics, a market where it competes with Nvidia Corp. But it also makes other accessory products called chip sets, which carry out functions such as fetching data from memory.
   
   Intel, the biggest maker of chip sets, has put pressure on ATI and Nvidia by building graphics capability into those products. Such integrated graphics capability is far less sophisticated than the most advanced specialty chips from either company but good enough for many tasks.
   
   The broad product line has hurt AMD, too. In markets such as laptop computers, controlling both chip sets and microprocessors has helped Intel offer such benefits as lower power usage. The combination also helps Intel woo big corporate personal-computer buyers, which want guarantees chip sets won't change for long periods, to hold down maintenance costs. AMD, relying on other component vendors, hasn't been able to guarantee such stability, said Roger Kay, an analyst at market researcher Endpoint Technologies Associates.
   
   ATI offers integrated graphics in some chip sets, too, and is particularly strong in chips for portable computers -- the fastest-growing part of the market. By buying ATI, analysts said, AMD can reduce Intel's advantages while helping ATI grow faster than it would have.
   
   "I was pretty skeptical of this deal initially," Mr. Kay said. "I now think it's a good idea."
   
   AMD also appears to be gambling that it can eventually leapfrog Intel, as features now in separate chip sets and graphics processors eventually will be shifted onto the same piece of silicon as microprocessors. By exploiting that trend, AMD could one day offer PC makers the ability to configure modular, multifunction chips, assembled by choosing from combinations of microprocessors and extra sets of circuitry for high-end graphics and video.
   
   "They will be the only company able to do that," said Jon Peddie, a market researcher in Tiburon, Calif.
   
   The transaction isn't without naysayers. That is partly because AMD has stressed the benefits of being a neutral partner for ATI and Nvidia, offering a choice of what it calls "best-of-breed" products rather than pressuring PC makers to buy everything from one supplier.
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   AMD still needs Nvidia's support in selling both chip sets and graphics chips. AMD is expected to give assurances that it will continue to give PC makers a choice among component suppliers and to set up procedures to handle technical information in ways that treat ATI and Nvidia on evenhandedly. Nvidia and Intel spokesmen declined to comment.
   
   Another possible concern is ATI's track record. The company has businesses beyond PCs, including graphics chips used in cellphones, digital televisions and videogame systems, including Microsoft Corp.'s Xbox 360 console.
   
   But the company has fallen behind Nvidia lately in the high-end graphics chips gamers prefer. In late June, ATI issued a sales forecast that fell short of analysts' expectations, triggering a sharp drop in its stock price.
   
   AMD is expected to predict that the combination will begin adding to earnings in 2007, with a significant contribution the following year. But the integration effort is likely to add to a series of management challenges, including spending to keep AMD's factories on par with Intel's and coping with a widening price war between the companies.
   
   The competition weighed on AMD's second-quarter earnings results, released Thursday. AMD's shares, already halved from their 52-week high of $42.70 in March, fell an additional 16% Friday to $18.26, down $3.39, as of 4 p.m. in New York Stock Exchange composite trading.
   
   Several news outlets reported a potential deal between AMD and ATI on Friday. ATI shares rose 83 cents, or 5.3%, to $16.56 as of 4 p.m. in Nasdaq Stock Market composite trading.
   
   The transaction needs to be approved by ATI shareholders. Morgan Stanley advised AMD on the deal, and Credit Suisse Group advised ATI, people familiar with the situation said.
   
   Write to Don Clark at don.clark@wsj.com and Dennis K. Berman at dennis.berman@wsj.com
2. 
   24 Jul 2006 ~ 1:26pm GHoosdum

   AMD also appears to be gambling that it can eventually leapfrog Intel, as features now in separate chip sets and graphics processors eventually will be shifted onto the same piece of silicon as microprocessors. By exploiting that trend, AMD could one day offer PC makers the ability to configure modular, multifunction chips, assembled by choosing from combinations of microprocessors and extra sets of circuitry for high-end graphics and video.

   
   Is it just me, or does this description sound kind of like Cell?