AMD-ATI speculation mounts

Speculation that AMD is preparing a US$5.5 billion acquisition of graphics powerhouse ATI continued to mount over the weekend with multiple US press reports suggesting that a deal could be confirmed as early as Monday. Both companies have so far declined to comment on the potential for a deal to occur.

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By  Stuart Wilson Published  July 23, 2006

Speculation that AMD is preparing a US$5.5 billion acquisition of graphics powerhouse ATI continued to mount over the weekend with US press reports suggesting that a deal could be confirmed as early as Monday. Both companies have so far declined to comment on the potential for a deal to occur. Acquiring ATI would represent a significant outlay for AMD, which has a market capitalisation of US$8.8 billion compared to ATI’s US$4.2 billion. Analysts are divided on the wisdom of a potential tie-up between AMD and ATI pointing out the various pros and cons involved. Those in favour of a deal point out that it would allow AMD to compete more effectively with Intel, which can offer a wider range of chips to its customers. A deal would also allow AMD to sell a range of graphics chips that Intel does not produce and allow it to pursue emerging opportunities in market sectors such as games consoles and cell phones. However, a deal would bring AMD into conflict with ATI’s fierce rival Nvidia, which is currently a partner of AMD. It would also cast doubts on ATI’s ability to sell chipsets used by PCs built on Intel CPUs. To date, AMD has relied on an open partner ecosystem and focused its energies on the microprocessor space, offloading business units such as its flash memory operation in the process. AMD has also reported lacklustre results for the quarter ending July 2nd. Revenues climbed 52.6% year-on-year to US$1.22 billion with after-tax profits hitting US$89m. This sales figure fell short of AMD’s second quarter sales target. Robert J. Rivet, AMD’s chief financial officer, commented: “We are particularly pleased with the continued adoption of AMD solutions in the commercial segment. In particular, AMD Opteron processor sales grew 26% sequentially and we believe we gained server processor market share in the quarter." “Sales to our largest customers grew quarter-over-quarter as we continued to successfully execute our strategy. Sales through the distribution channel were down, primarily because we chose not to participate in certain deeply-discounted opportunities,” he added.

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