AMD inks US$5.4bn deal to grab ATI Technologies

AMD is spending US$5.4 billion to acquire Canadian graphics chip maker ATI Technologies in a deal that is widely seen as an attempt by AMD to better challenge its larger rival Intel.

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By  Dylan Bowman Published  July 30, 2006

AMD is spending US$5.4 billion to acquire Canadian graphics chip maker ATI Technologies in a deal that is widely seen as an attempt by AMD to better challenge its larger rival Intel. The chip giant supplies both microprocessors and graphics chips. By buying Canada-based ATI, AMD will turn itself into a leading supplier of graphics technology overnight. AMD has made serious inroads into Intel’s hold on the microprocessor market, especially in the server space, and the company is hoping the deal will accelerate this trend in other areas such as PCs — which has remained Intel’s stronghold. By combining ATI’s graphics chips with its technology AMD will be able to offer a complete PC platform to customers. It believes this will give it an increased presence in lucrative emerging markets with a heavy emphasis on graphics power such as the gaming sector and the ‘digital home’ — an area Intel has been investing heavily in. “Visual computing is playing a larger role in what we are doing, going forward,” Hector Ruiz, AMD chairman and CEO, said in a conference call with analysts last week. “All of our product lines will benefit. Joining with AMD will enable us to innovate aggressively on the PC platform, and continue to invest significantly in our consumer business to stay in front of our markets,” ATI president and CEO Dave Orton, who will join AMD’s executive team as an executive vice president, said in the statement announcing the deal. There was speculation that the merger would put an end to ATI’s business of supplying graphics chipsets to Intel, which is estimated to be worth somewhere in the region of US$90million a year, and AMD’s partnership with graphics chip maker Nvidia. However, Nvidia CEO Jen-Hsun Huang seemed anything but upset upon hearing news of the deal. “I thought it was just impossible to get a gift like this,” Huang declared in US magazine Business Week. “[ATI is] basically throwing in the towel, leaving us as the only stand-alone [graphics chip] company in the world,” Huang claimed. Intel was more measured in its response, stating it was “evaluating the deal” to see how it would impact on its agreements with ATI and AMD. “We are evaluating the deal, and have got a lot to figure out how it would fit in with our existing agreements with both ATI and AMD,” an Intel spokesperson told Business Week. Executives at both AMD and ATI said the merger would not affect their relationships with either Intel or Nvidia, and told IT Weekly it would be “business as usual”. AMD anticipated that the deal, which is expected to be completed in the fourth quarter of this year, would reduce operating expenses by approximately US$75million for the combined company by the end of 2007.

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