| newsguy 2006-07-26, 7:13 pm |
|
AMD to Buy Graphics Chip Maker ATI
By DAN GOODIN
AP Technology Writer
July 25, 2006, 7:34 AM EDT
SAN FRANCISCO -- Advanced Micro Devices Inc. struck another blow at Intel
Corp., its bigger rival in the market for personal-computer
microprocessors, as it disclosed plans Monday to buy one of the dominant
makers of graphics chips in a $5.4 billion deal that analysts said could
fundamentally alter competition in the semiconductor industry.
The acquisition of ATI Technologies Inc. will allow AMD to shed its role as
a boutique player that sells only microprocessors, which act as the core
calculating engines in PCs. Almost immediately, AMD will become a seller of
chips in four new categories, eroding a key advantage of Intel, which has
long benefited from its broader product portfolio.
AMD over the past year has taken about 5 percentage points of market share
from Intel thanks to a series of processors that in many cases outperformed
and cost less than those of its larger rival. Monday's purchase, which
comes as a trio of new products has allowed Intel to eliminate AMD's price
and performance advantages, helps the smaller company to open a new front
of attack, analysts said.
"It's one of the most disruptive and exciting things to happen to the PC
industry in a very long time," said Jon Peddie of Jon Peddie Research.
"It's a brilliant move on their part because they've scooped up an
excellent company and they have a whole bag of products that Intel doesn't
have."
AMD's new offerings will include graphics chips, which render images for
computer games and Internet video, and so-called chipsets, which connect a
PC's processor to other system components. AMD executives said they will
win more business in the highly profitable processor market as they
integrate video and other functions into those products.
Hector Ruiz, AMD's chief executive, said the purchase will also help the
company gain share in the market for processors that run laptop PCs. Intel
has long enjoyed an advantage thanks to the popularity of Centrino, a
bundle of chips that's designed to reduce power consumption and extend
battery life.
The combined company will be better able to take on Intel in the market for
business PCs, which Endpoint Technologies Associates analyst Roger Kay said
accounts for about two-thirds of overall microprocessor sales and has long
been an Intel stronghold. ATI's popularity in Japan, another sweet spot for
Intel, will also help AMD in that region, AMD executives said.
Under terms approved unanimously by both companies' boards of directors,
Sunnyvale-based AMD will pay $4.2 billion in cash and 57 million of its
shares to acquire all of ATI's outstanding stock. Based on AMD's closing
share price of $18.21 on Friday, the deal valued ATI's shares at $20.47, a
premium of almost 24 percent compared with ATI's Friday closing price of
$16.56.
AMD, which had $2.5 billion in cash on hand at the end of June, said it
planned to borrow about $2.5 billion to help pay for the purchase.
ATI shares surged $3.11, or 18.8 percent, to close at $19.67 on the Nasdaq
Stock Market. AMD shares fell 87 cents, or 4.8 percent, to $17.39 on the
New York Stock Exchange.
The transaction, which is subject to approval by Markham, Canada-based ATI
shareholders and U.S. and Canadian regulators, is expected to be completed
by year's end, AMD executives said.
Not all observers said the purchase was sound. Tom Smith, a chip analyst at
Standard & Poor's Equity Research, downgraded AMD's stock on word of the
acquisition.
"We are leery of the additional financial burden posed by the buyout,"
Smith said in an interview. "It's possible that you get more of a downturn
than we or the Street expects for personal computers, and suddenly your
revenue isn't there to cover the debt and you're backed into a corner."
The chief executive of Nvidia Corp., the other dominant maker of graphics
chips, said ATI's coupling with AMD will strengthen his hand, because
Intel, which sells about 80 percent of the world's microprocessors, will be
loath buy graphics chips from a competitor.
"I doubt that Intel will work with AMD, so being in a position of
neutrality and being able to support both processors with passion is pretty
good for us," said Jen-Hsun Huang, Nvidia's chief, in an interview.
Nvidia shares closed up $1.79, or 10.1 percent, to $19.56.
But AMD executives dismissed the criticisms, saying the purchase will allow
it to gain yet more market share. A gain of 1 percentage point translates
to about $300 million in additional annual revenue, said Bob Rivet, AMD's
chief financial officer.
"That number expands to hundreds of millions of dollars in (2008) and
billions of dollars beyond the '08 period of time," Rivet said on a
conference call. He said about 60 percent of the additional sales would go
to gross margin, which is the amount of sales left after paying
manufacturing costs.
The purchase also gives AMD entree to new markets as the company adds
television tuners in PCs and graphics chips for cell phones and
high-definition TVs to its product lineup. Intel, which in June sold a unit
that makes chips for handheld devices, has had difficulty overtaking
entrenched competitors in some of those markets.
http://www.newsday.com/technology/w...n,0,2950723.sto
ry?coll=sns-ap-technology-headlines
|