AMD agreed to acquire graphics powerhouse ATI Technologies in a surprise $5.4 billion deal that will radically alter the landscape of the PC component industry. The deal sets the stage for combined CPU and graphics cores in 2008, the two companies said.
ATI will become "the ATI business division," within AMD, and its chief executive and president, Dave Orton, will become an executive vice president reporting to both AMD president and chief operating officer Dirk Meyer and AMD's chief executive, Hector Ruiz. The deal, if agreed to by shareholders, will total $4.2 billion in cash and 57 million shares of AMD common stock, which the company is valuing at $18.26 per share.
The combination would create a company with an estimated $7.3 billion in sales. ATI said it has received an opinion from its financial advisers that the transaction from a financial point of view is fair to its shareholders. Meanwhile, AMD said it expects that the transaction will be slightly accretive to earnings in 2007, and "meaningfully accretive" in 2008. Shareholders from both companies must still approve the transaction, which would then most likely be finalized during the fourth quarter of 2006, AMD said.
In a statement released ahead of a conference call with reporters scheduled for 8 AM EDT, AMD said that in 2007 the two companies would deliver "customer-centric platforms", specifically in the commercial and mobile computing segments and the growing consumer-electronic market.
The deal will combine ATI's established core logic and graphics expertise with AMD's microprocessors. Both ATI and AMD trail Intel in their respective segments, although the graphics market can be assessed in different ways; while Intel still holds a significant lead over ATI and rival Nvidia in total graphics chips shipped, Intel's edge disappears if integrated graphics/core logic chips are factored out of the equation. What the future will hold, however, is still somewhat vague.
"In 2008 and beyond, AMD aims to move beyond current technological configurations to transform processing technologies, with silicon-specific platforms that integrate microprocessors and graphics processors to address the growing need for general-purpose, media-centric, data-centric and graphic-centric performance," AMD said in a statement.
The deal was not expected, primarily because AMD had always positioned itself as a vendor that allowed its customers a choice of components. Intel's Centrino platform combines a processor, chipset, and communications chip.
That would seem to indicate that either ATI or AMD will see to develop communications processors, or else put a number of communications chip companies in play. AMD has traditionally encouraged its OEM vendors to buy components from both Atheros and Broadcom.
AMD has also historically struggled with debt as it struggled to build new fabs to compete with Intel, which has traditionally held more than five times the market share of AMD in the PC microprocessor space, and has sold core logic and communications chips to boot.