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REUTERS: Semiconductor designer Advanced Micro Devices Inc (AMD) said on Tuesday it would buy Xilinx Inc in a $ 35 billion share deal, escalating its battle with Intel Corp in the data center chip market.
The deal, which AMD expects to close by the end of 2021, will create a combined company with 13,000 engineers and a fully outsourced manufacturing strategy that relies heavily on Taiwan Semiconductor Manufacturing Co Ltd (TSMC).
The two US companies have benefited from a more nimble approach to seize market share from Intel, which has struggled with in-house manufacturing.
AMD has long been Intel’s main rival for central processing units (CPUs) in the personal computer business.
Since CEO Lisa Su took over AMD in 2014, she has focused on challenging Intel in the fast-growing business of data centers that power Internet-based applications and services and are fueling the boom in artificial intelligence and fifth generation telecommunications networks.
Xilinx has also been working to penetrate data centers with programmable processors that help speed up specialized tasks like compressing video or providing digital encryption. Its main rival in the area, Altera Corp, was acquired by Intel for $ 16.7 billion in 2015 in what was then Intel’s largest deal.
“There are some areas where we are very strong and we will be able to accelerate part of the adoption of the Xilinx family of products,” Su told Reuters in an interview. “And there are some areas where (Xilinx CEO) Victor (Peng) is very strong and we think we will be able to accelerate some of the AMD products in those markets.”
The union comes at a time when Intel’s manufacturing technology has lagged behind TSMC’s years. AMD, which spun off its factories nearly a decade ago, has soared ahead of Intel with better-performing chips. The performance advantage helped AMD get its best market share since 2013 with just under 20 percent of the CPU market, which in turn has seen its shares rise 79 percent this year.
Shares of AMD fell about 4% in pre-market trading, while Xilinx’s were up more than 12% after the deal was announced.
Xilinx also uses TSMC factories, called “fabs” in the industry, to make its chips, and both US companies use modular designs that allow them to interchange different parts of a chip to avoid bottlenecks or delays.
“We finished with TSMC and we have stayed with them, not for any contractual reason, we could go to any fab at any time, but because they are the best in their class,” Peng told Reuters in an interview. “It’s about the decisions you make.”
Under the agreement, Xilinx shareholders will receive about 1.7 AMD common shares for each Xilinx common share, valuing Xilinx at $ 143 per share, or about 24.8% more than its closing price of 114.55. dollars on October 26. It will own about 74 percent of the combined company, and Xilinx shareholders will own the remaining 26 percent.
AMD’s Su will lead the combined company as CEO, and Xilinx’s Peng will serve as president responsible for Xilinx’s business and strategic growth initiatives. The companies expect the deal to generate $ 300 million in cost savings.
AMD also reported earnings Tuesday ahead of schedule. It reported adjusted revenue and earnings of $ 2.80 billion and 41 cents a share, beating Wall Street expectations of $ 2.57 billion and 36 cents a share, according to IBES data from Refinitiv.
Bernstein analyst Stacy Rasgon said there is a danger that a major acquisition in an adjacent chip market could distract AMD’s leadership as Intel struggles to regain market share.
“The concern would be that AMD has this great story of its own, just beginning to unfold. Why are you doing this now? Is it just opportunistic? Does it distract you from the current story?” he said.
Xilinx’s Peng, however, said that meetings between the two companies have already revealed that they have very similar methods for designing chips.
“I’ll be honest, I don’t think it’s as challenging as other combinations,” he said. “One of my leadership teams, who was unfamiliar with AMD, told me after a meeting, ‘Wow, they’re just like us.’
(Reporting by Stephen Nellis in San Francisco and Munsif Vengattil in Bengaluru; Edited by David Gregorio, Christopher Cushing and Anil D’Silva)
