ATI-AMD deal analyzed


— 3:57 PM on July 24, 2006

Analysts and press alike have been covering the AMD-ATI deal rather extensively, and some have shared interesting insights into the situation. Aside from the obvious advantages of "platformization" and CPU/GPU hybridization cited by AMD and ATI, Jon Peddie Research believes the acquisition could help AMD's relationships with PC vendors. "The best way to reduce the cost for PC vendors is to deal with fewer suppliers," the firm says, noting the "aggressive cost procurement reduction programs" undertaken by companies like Dell and HP. Being able to sell processors, chipsets, and graphics could also help pump up AMD's shrinking gross margin, which fell 1.7% to 56.8% in the second quarter, according to the New York Times.

Despite these prospects, the deal could also present some downsides. The New York Times thinks the slowing of overall PC sales could be a challenge for a merged AMD and ATI, and the Wall Street Journal says ATI's track record is also a concern. The red team has fallen behind NVIDIA in the high-end graphics segment, and its stock price also dropped in June after a sales forecast that turned out below analysts' expectations. ATI could also face troubles from AMD, as Jon Peddie suggests: "If AMD tries to integrate the whole thing too aggressively, they will suffer the same fate as Intel did ... You need to leave ATI alone."

Some also believe AMD paid too much for ATI. The Wall Street Journal says AMD's $5.4 billion bid is "one of the largest amounts paid for a chip maker," and a ThinkEquity Partners analyst quoted by Reuters claims AMD paid "a lot more than it would have six months ago," when its stock price was significantly higher and ATI's was lower. Indeed, AMD's shares were at $42.70 back in March but plummeted to $18.26 on Friday and are now down to around $17.50. ATI's shares, on the other hand, were as low as $14.33 in March, but hit $16.48 last Friday and $19.58 today.

 
   
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