Rumor mill abuzz with AMD-IBM merger, partnership talk


— 5:11 PM on January 24, 2008

In the wake of AMD's fourth-quarter financial results announcement, in which the company announced near operational break-even and a $1.77 billion net loss, a rumor has emerged that IBM may be planning a takeover bid for the ailing chipmaker. The rumor has gained enough momentum to warrant a mention on Reuters, which says AMD's shares went up 8% yesterday as a result of the speculation.

That said, analysts seem split on the actual likelihood of a merger. On one side, vFinance Investments options strategist William Lefkowitz tells Reuters, "The takeover of AMD by IBM has been mentioned before and with AMD shares being so low, it might be a good time for IBM to acquire them." On the other, CRT Capital Group analyst Ashok Kumar claims an acquisition would be a "pretty low-probability event because IBM is moving away from hardware and manufacturing and moving to software and solutions." Kumar adds that an AMD buyout would "destroy shareholder value for IBM."

There is a third option, however. AMD and IBM are already engaged in a research and development partnership, and MarketWatch quotes JMP Securities analyst Krishna Shankar as saying the firms could strengthen that partnership and turn it into a more formal affair. The partnership could play into the "asset-light" business model that AMD CEO Hector Ruiz briefly mentioned last week, as well.

According to Shankar, a deeper partnership between AMD and IBM could allow the former to outsource production to IBM's New York fab. The two companies could also enter a cross-licensing deal to deflect possible lawsuits from Intel that would seek to limit AMD's processor outsourcing capability.

   
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