Markham, Ont.-based ATI supplies both AMD and rival chipmaker Intel Corp. with chips and interfaces integrated into each company’s products. Though it is conceivable that arrangement could change in time, AMD chairman and CEO Hector Ruiz said there is no immediate plan to do so.
“If customers are excited with the products AMD is providing to Intel platform customers, I would think Intel would be delighted to let those customers continue to buy those products,” he said. “We have no intention of blocking or prohibiting the sale of ATI products to anyone.”
Likewise of possible impacts the deal could have on AMD’s current partnership with NVidia as the company parlayed a sense of status quo, suggesting ATI’s GPUs (graphics processing unit) would compete with NVidia’s.
“Our customers and partners are excited about what we can do together in a market that has long been dominated by one company,” Ruiz continued. “Our commitment to Canada is strong . . . we are confident our companies and our cultures will integrate well together. As with technology, integration is both inevitable and advantageous.”
AMD said its’ integration plans would be detailed upon the closing of the transaction in the fourth quarter of 2006 (4Q06) as is customary. The board of directors for both companies unanimously approved the proposed deal, officials said.
While still subject to ATI shareholder approval, the deal is also subject to a Canadian court supervision of a Plan of Arrangement, and other regulatory approvals including merger notification filings in the U.S., Canada, and other jurisdictions.
Michelle Warren, senior IT industry analyst for Evans Research Corp., said the anticipated merger of the two firms holds much significance for the industry at large.
“The investment community does not see this as being as strong of a move as AMD’s production expansion plans that were announced earlier. However, this move does help AMD in furthering its product offerings, and help it become more of a solution organization. And it is a move that is in-line with AMD’s commitment to the high-end consumer and gaming segments,” she said. “For AMD this merger has the potential to create more of a solution sale company for processor and graphics. It also has the potential to increase competition within the processor market, and offer more options for customers, end-users, and reseller partners alike.” Furthermore, Warren said for AMD’s and ATI’s relationships with the channel and system integrators, the deal could potentially spell more of a ‘one-stop shopping’ experience.
AMD said it would reduce operating expenses by approximately $75 million for the combined company by the end of 2007 and it would have achieved approximately $7.3 billion in total consolidated sales during the last four quarters with a workforce of approximately 15,000 employees.
There is some overlap in certain areas of the two entities’ businesses. But Ruiz said he did not expect there to be any significant layoffs beyond modest changes in areas where overlap occurs in the combined company, stressing this deal is about growth.
Warren Shiau, associate partner and senior IT analyst for The Strategic Counsel, said the deal appears to be a good one for ATI shareholders: A cash out at a pretty good price from what’s been a very volatile stock. Stock traders won’t be happy though as ATI was always a great trading stock, he added.
“For ATI itself, the deal could be pretty good too. ATI is a great engineering company. Process and operations-wise, it hasn’t been the best it could. Maybe being under the AMD umbrella would help ATI in that sense,” he said. “I think AMD will have to let ATI run with lots of independence; it needs to keep the engineering staff and can’t afford to disrupt any of the ongoing product development. Missing a product cycle in graphic chips has disastrous consequences, so AMD must make it a smooth acquisition.” For AMD, Shiau said he’s uncertain of the reasons for why the move has been made. AMD is going to be in the fight of its life over the next few years with Intel and it has to be 100 per cent on the ball in everything from engineering, production, to marketing and sales.
“If it’s going to come through Intel’s onslaught without losing significant market share,” he said. “ATI is a really big acquisition that’s going to take-up a lot of effort on AMD’s part. Maybe AMD felt it had to make a pre-emptive move to prevent any possibility of Intel buying ATI.” He added any relationships AMD or ATI have with the likes of NVidia or Intel respectively would over time change.
With respect to Torrenza — AMD’s strategy to create an open and extensible architecture for its chips — ERC’s Warren said it is in a company’s best interest to respect and value the partnerships with vendors that are outside of its’ areas of expertise.
“I’m not sure what the wording would be in the ATI-AMD contract, but a clause to enable an ongoing relationship with NVidia on certain projects might exist,” she said. “More likely though, I suspect that AMD and ATI will work together and perhaps NVidia and Intel might find themselves working more closely together.”
Headquartered in Sunnyvale, Calif., AMD said it would maintain sales, design and manufacturing centers worldwide and major business centers in Silicon Valley, Austin, Texas, and Markham.
ATI’s president and CEO Dave Orton will serve as an executive vice president of the ATI business division, reporting to Ruiz and AMD president and CEO Dirk Meyer. Moreover, two ATI directors will join AMD’s board of directors upon closing of the transaction.
When asked about Intel’s “platformization” strategy (an x86-based CPU and series of technologies sold as one solution), Meyer said AMD would forge its’ own path.
“Our competitor’s management strategy requires the use of Intel chipsets and Intel network interface controllers in order to implement their proposed platform-level standard, thereby locking out competition from other components,” he said. “We’re not going to do that. We’re going to keep open our interface standards and the software standards that sit atop of the hardware to encourage continued participation in our ecosystem.
“This acquisition is not only about platforms in the near-term. It’s also about the integration of our technologies, and silicon over time and further innovation.”