AMD Graphs ATI $5.4B Deal
By: David Utter
The $5.4 billion merger brings the semiconductor company a graphics powerhouse as it prepares to escalate the competition with Intel, particularly in the mobile computing arena.
When the deal closes in the fourth quarter of 2006, Advanced Micro Designs (AMD) will have a number of markets to take on with a combined processor and graphics platform using ATI (ATYT) as a lever to open them wider.
AMD announced the cash and stock deal will include a combination of $4.2 billion in cash and 57 million shares of AMD common stock. The deal values ATI's shares at 20.47; on Monday, the stock closed at 19.67, up 3.11 after the announcement.
Confidence in the deal led AMD to assume $2.5 billion in debt for the merger. That cash came from Morgan Stanley Senior Funding. AMD will kick in the other $3 billion from its cash and equivalents.
Mobile computing looks like the important area for the deal to pay off for AMD. Intel (INTC) has its Centrino Duo processor poised to replace the Centrino chipsets that have been the core of millions of notebook machines sold in the market.
Intel combines its 945 Express Chipset with the Graphics Media Accelerator 950 to power the displays on notebooks. AMD would be able to match this and should be in a position to exceed Intel's capabilities through the use of ATI technology.
If AMD can make this a cost-effective solution and deliver on the performance side, it could shift some of the notebook industry power away from Dell and toward HP, which already produces AMD-powered notebook machines.
Dell had been exclusively an Intel shop but opened part of its server line to AMD earlier in 2006. Unless Dell can continue to compete on price while gaining from the notoriously thin margins in the PC business, they may need to look at AMD again, and that will put some pressure on Intel.
AMD CEO Hector Ruiz would likely enjoy nothing more than to gain another piece of Dell's business at the expense of its bitter rival, Intel. Dell saw its stock plunge Friday in a selloff of nearly 10 percent after the company announced issued a less-than-optimistic financial outlook, and may be vulnerable to shareholder pressure to make another AMD deal to help cut costs.
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