| AMD buys ATI Technologies
for $5.4 billion (U.S.)
24 July, 2006
By Liam Lahey
Advanced Micro Devices Inc. has acquired Canadian graphics
chipmaker ATI Technologies Inc. to the tune of $5.4 billion
(U.S.).
AMD officials said the combination of the two firms would
create a processing powerhouse particularly in the commercial
and mobile computing segments and in the consumer electronics
(CE) market.
Markham, Ont.-based ATI supplies both AMD and rival chipmaker
Intel Corp. with chips and interfaces integrated into each
company's products. Though it is conceivable that arrangement
could change in time, AMD chairman and CEO Hector Ruiz said
there is no immediate plan to do so.
"If customers are excited with the products AMD is providing
to Intel platform customers, I would think Intel would be
delighted to let those customers continue to buy those products,"
he said. "We have no intention of blocking or prohibiting
the sale of ATI products to anyone."
Likewise of possible impacts the deal could have on AMD's
current partnership with NVidia as the company parlayed a
sense of status quo, suggesting ATI's GPUs (graphics processing
unit) would compete with NVidia's.
"Our customers and partners are excited about what we
can do together in a market that has long been dominated by
one company," Ruiz continued. "Our commitment to
Canada is strong . . . we are confident our companies and
our cultures will integrate well together. As with technology,
integration is both inevitable and advantageous."
AMD said its' integration plans would be detailed upon the
closing of the transaction in the fourth quarter of 2006 (4Q06)
as is customary. The board of directors for both companies
unanimously approved the proposed deal, officials said.
While still subject to ATI shareholder approval, the deal
is also subject to a Canadian court supervision of a Plan
of Arrangement, and other regulatory approvals including merger
notification filings in the U.S., Canada, and other jurisdictions.
Michelle Warren, senior IT industry analyst for Evans Research
Corp., said the anticipated merger of the two firms holds
much significance for the industry at large.
"The investment community does not see this as being
as strong of a move as AMD's production expansion plans that
were announced earlier. However, this move does help AMD in
furthering its product offerings, and help it become more
of a solution organization. And it is a move that is in-line
with AMD's commitment to the high-end consumer and gaming
segments," she said. "For AMD this merger has the
potential to create more of a solution sale company for processor
and graphics. It also has the potential to increase competition
within the processor market, and offer more options for customers,
end-users, and reseller partners alike." Furthermore,
Warren said for AMD's and ATI's relationships with the channel
and system integrators, the deal could potentially spell more
of a 'one-stop shopping' experience.
AMD said it would reduce operating expenses by approximately
$75 million for the combined company by the end of 2007 and
it would have achieved approximately $7.3 billion in total
consolidated sales during the last four quarters with a workforce
of approximately 15,000 employees.
There is some overlap in certain areas of the two entities'
businesses. But Ruiz said he did not expect there to be any
significant layoffs beyond modest changes in areas where overlap
occurs in the combined company, stressing this deal is about
growth.
Warren Shiau, associate partner and senior IT analyst for
The Strategic Counsel, said the deal appears to be a good
one for ATI shareholders: A cash out at a pretty good price
from what's been a very volatile stock. Stock traders won't
be happy though as ATI was always a great trading stock, he
added.
"For ATI itself, the deal could be pretty good too.
ATI is a great engineering company. Process and operations-wise,
it hasn't been the best it could. Maybe being under the AMD
umbrella would help ATI in that sense," he said. "I
think AMD will have to let ATI run with lots of independence;
it needs to keep the engineering staff and can't afford to
disrupt any of the ongoing product development. Missing a
product cycle in graphic chips has disastrous consequences,
so AMD must make it a smooth acquisition." For AMD, Shiau
said he's uncertain of the reasons for why the move has been
made. AMD is going to be in the fight of its life over the
next few years with Intel and it has to be 100 per cent on
the ball in everything from engineering, production, to marketing
and sales.
"If it's going to come through Intel's onslaught without
losing significant market share," he said. "ATI
is a really big acquisition that's going to take-up a lot
of effort on AMD's part. Maybe AMD felt it had to make a pre-emptive
move to prevent any possibility of Intel buying ATI."
He added any relationships AMD or ATI have with the likes
of NVidia or Intel respectively would over time change.
With respect to Torrenza -- AMD's strategy to create an open
and extensible architecture for its chips -- ERC's Warren
said it is in a company's best interest to respect and value
the partnerships with vendors that are outside of its' areas
of expertise.
"I'm not sure what the wording would be in the ATI-AMD
contract, but a clause to enable an ongoing relationship with
NVidia on certain projects might exist," she said. "More
likely though, I suspect that AMD and ATI will work together
and perhaps NVidia and Intel might find themselves working
more closely together."
Headquartered in Sunnyvale, Calif., AMD said it would maintain
sales, design and manufacturing centers worldwide and major
business centers in Silicon Valley, Austin, Texas, and Markham.
ATI's president and CEO Dave Orton will serve as an executive
vice president of the ATI business division, reporting to
Ruiz and AMD president and CEO Dirk Meyer. Moreover, two ATI
directors will join AMD's board of directors upon closing
of the transaction.
When asked about Intel's "platformization" strategy
(an x86-based CPU and series of technologies sold as one solution),
Meyer said AMD would forge its' own path.
"Our competitor's management strategy requires the use
of Intel chipsets and Intel network interface controllers
in order to implement their proposed platform-level standard,
thereby locking out competition from other components,"
he said. "We're not going to do that. We're going to
keep open our interface standards and the software standards
that sit atop of the hardware to encourage continued participation
in our ecosystem.
"This acquisition is not only about platforms in the
near-term. It's also about the integration of our technologies,
and silicon over time and further innovation."
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