Rumor: AMD to buy ATI?

[Dr Mordrid]

http://www.reghardware.co.uk/2006/07/07/amd_ati_buyout_deal_claim/

AMD has reached an agreement with ATI to buy the graphics chip company. An official statement will be made shortly - if, that is, you believe a report on a Chinese-language website citing a single source said to be close to the negotiations.

We're taking this with a big pinch of salt. The unnamed source, cited by Sohu.com, would provide no details of the deal.

The claim that AMD wants to buy ATI was made back in late May this year by RBC Capital Markets analyst Apjit Walia. For evidence of such interest, the market watcher could only point to AMD's cash pile and its desire to boost output over the next few years. He also said ATI had an attractive stock price.

ATI's market capitalisation is $3.83bn, its share price $15.10 at the close of trading on Nasdaq yesterday. AMD's share price closed at $23.83, leaving it with a market cap of $11.54bn. It quit Q1 FY2006 with $2.63bn in the bank.

Yesterday, AMD said it expects its Q2 sales to total $1.215bn, up 52 per cent up on the year-ago quarter but down nine per cent on the previous three-month period. The chip maker's second-quarter numbers are due 20 July.

If AMD does buy ATI, it will have to tread very carefully to avoid annoying its other chipset partners like Nvidia and VIA. Maybe it wouldn't mind, using an ATI acquisition as the basis of its own integrated and discrete chipset product lines in a bid to match Intel's chipset offerings.

Such a strategy has opportunities, particularly now AMD's marketshare is growing, but there are big risks too.

[Jammrock]

This has been rumored off an on for over a year. AMD needs to start making complete platforms to compete with Intel in the business sector, yet needs not to upset nVidia. ATi would be a good purchase as long as they don't piss off nVidia.

[Umfriend]

Is it that hard to do that by themselves? What do they use to test their new CPU's with? I can only imagine production capacity to be an issue, but that, surely, must be readily solvable with all the chinese and taiwanese production houses, no?

[Taz]

Is it that hard to do that by themselves?

They have produced their own which have been used on their reference boards but that's different then producing a whole range of chipsets with regular updates like nVidia, ATI, VIA, etc. They would also need to produce a chipset with integrated graphics and I can't imaging they're too keen on designing their own graphics core from scratch.

[Jammrock]

Aye, a "platform" in this sense involves a great deal more than a chipset and a CPU. Take the Centrino platform that Intel pimps. That platform consists of chipset, CPU, WiFi, an optional LAN component, and an optional graphic component. The first three are required for Centrino certification, the latter two are not. By providing this platform to OEMs Intel can give them a single point of sales to provide all the core components of a system. They can also practically garuantee stability and compatibility to businesses because everything was designed to work with everything else from scratch by the same company.

This latter reason is one of the key reasons why AMD can't break into the big business market, where a large percentage of revenue is made. Businesses are very, very picky and superstitious about what they buy because they buy in bulk. If you order 5000 systems, only to find out that there are multiple problems with some of your key apps because of a bug in the third party chipset, your in a whole hell of a lot of trouble and IT heads will roll. Buying into an Intel platform grants a great deal of stability and compatibility, and so that's what businesses buy.

If AMD were to buy ATi, and perhaps a few small companied to complete the necessary components to build an in-house platform, AMD would have a much greater chance of breaking in the business market where Intel dominates. Because while big businesses won't buy a computer with an AMD processor, an ATi chipset, a Netgear WiFi card, and an Ati grapahics card, they are more apt to buy into an AMD processor with an AMD chipset, and AMD wifi card and an AMD IGP.