AMD Takes Graphics Chipset Plunge With ATI Acquisition

Advanced Micro Devices announced the largest acquisition in its history Monday, paying about $5.4 billion to acquire graphics chip specialist ATI Technologies. The acquisition will let AMD expand its position in the commercial desktop and mobile computing markets, two areas where the company has not had much success.

In addition to accelerating the company's x86 processor market share battle with Intel, the acquisition will expand AMD's access to manufacturing capacity and will lead to products that will integrate both microprocessors and graphics engines in a single chip in future releases.

"Together we intend to create a processing powerhouse," said Hector Ruiz, chairman and chief executive of AMD, during a teleconference to announce the deal. "We are confident the companies will integrate well together. We believe that as technology advances, integration is not only inevitable, but also advantageous."

Beginning next year, the companies will market "customer-centric platforms" using AMD and ATI technologies that will include all existing product offerings. Beginning in 2008, AMD plans to introduce platforms that integrate general purpose processors and graphics engines to meet specific media, data, and graphic requirements, says Dave Orton, president and chief executive of ATI.

Bob Rivet, CFO of AMD, says the acquisition is expected to be completed by year's end. The purchase is a combination of $4.2 billion in cash and 57 million shares of AMD stock.AMD's current area of greatest strength is providing processors that address the server and consumer desktop market, Rivet says. Bringing ATI's graphics technology in-house will allow AMD to better address the commercial desktop and laptop markets, he says, two areas where AMD currently has a smaller presence.

While overall sales of x86 processors currently totals about $30 billion annually, AMD is primarily addressing only a segment that totals about $13 billion, Rivet says. By expanding more into commercial desktop and laptop markets, AMD will be able to grow its overall x86 market share. Rivet says that each percentage of market share gained equates to about $300 million in revenue.

Ruiz says the acquisition "opens up a broad array of options for expanding our capacity infrastructure" by providing AMD with an expanded relationship with some of the largest semiconductor foundries in the world. Currently AMD utilizes internal manufacturing capacity, as well as capacity from Chartered Semiconductor Manufacturing. ATI, however, has manufacturing relationships with two of the other largest foundries in the world, Taiwan Semiconductor Manufacturing and United Microelectronics.

The acquisition of ATI by AMD will now provide computer makers and customers with another choice for integrated microprocessor and graphics processor platforms, says Bruce Shaw, director of worldwide commercial marketing for AMD. Currently only Intel offers an integrated platform.

Although AMD will be providing integrated platforms, it will continue to support the use of third-party graphics products, such as those from Nvidia, in combination with its processors, Shaw says.AMD has no plans to reduce the ATI product line or back away from markets it addresses, such as cell phones, where AMD has little or no presence, he said. ATI is expected to continue to operate out of its headquarters in Markham, Ontario, and layoffs are expected to be minimal.