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Diversifying the marketing mix. AMD announces its latest move to purchase ATI Taiwan but not all analysts stood up to commend the decision. So just what are the implications of this take over for AMD’s technology in microprocessing and ATI”s business in graphics chipsets? Find out the news on this latest industry development.
AMD enters new era with ATI purchase
AMD has changed the way it will function as a company with the acquisition of ATI in Taiwan. The announcement by AMD Chairman and CEO Hector Ruiz means that AMD moves beyond the role of microprocessor manufacturer and will now offer a range of silicon solutions across a wide range of applications. The move will also enable AMD to have more control of IC manufacturing pricing along the silicon food chain. Not all analysts were applauding the move as the industry begins to work out the implications.
ATI designs and manufactures 3D graphics, PC platform technologies and digital media silicon solutions. The company has a ready made customer list along the full range of PC and Mac desktop and notebook platforms, workstation, set-top and digital television, game console and handheld device markets. The purchase means that AMD returns to its diversified roots. A position it had successfully moved from. The announcement was reported as a merger but under the terms of the transaction, AMD will acquire all of the outstanding common shares of ATI for a combination of $4.2 billion in cash and 57 million shares of AMD common stock, based on the number of shares of ATI common stock outstanding on July 21, 2006. The transaction is valued at approximately $5.4 billion.
The combination of the two companies will create a processing powerhouse that brings AMD’s technology in microprocessors together with ATI’s strengths in graphics, chipsets and consumer electronics. The result a new and more formidable company that will go into direct competition with some of the biggest names in the industry, especially Intel and Nvidia. This is where some analysts are being cautious. It will be interesting to watch the market share battles ahead.
The company states that from 2008 and beyond, AMD aims to move beyond current technological configurations to transform processing technologies, with silicon-specific platforms that integrate microprocessors and graphics processors to address the growing need for general-purpose, media-centric, data-centric and graphic-centric performance. The great challenge for AMD is that it has become a focused company that will need to apply that same focus to a number of new products at the same time.
“ATI shares our passion and complements our strengths:
technology leadership and customer centric innovation,” said AMD Chairman and CEO Hector Ruiz. “Bringing these two great companies together will allow us to transcend what we have accomplished as individual businesses and reinvent our industry as the technology leader and partner of choice.”
“This combination means accelerated growth for ATI, and broader horizons for our employees,” said Dave Orton, President and CEO of ATI. “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.”
With fiscal 2005 revenues of US $2.2 billion, ATI has approximately 4,000 employees in the Americas, Europe and Asia. ATI common shares trade on NASDAQ (ATYT) and the Toronto Stock Exchange (ATY).
AMD expects to finance the cash portion of the transaction with a combination of cash and new debt. AMD has obtained a $2.5 billion term loan commitment from Morgan Stanley Senior Funding, Inc. which, together with combined existing cash, cash equivalents, and short term investments balances of approximately $3.0 billion, provides full funding for the transaction. ATI has received an opinion from its financial advisors that the transaction from a financial point of view is fair to its shareholders. The transaction was unanimously approved by the board of directors of each company. The transaction is expected to be completed in the fourth quarter of 2006.
The combined company would have achieved approximately $7.3 billion in total consolidated sales during the last four quarters with a workforce of approximately 15,000 employees. AMD’s current executive team will be complemented by the addition of ATI President and CEO Dave Orton. Orton will serve as an executive vice president of the ATI business division, reporting to the AMD Office of the CEO, comprised of Chairman and CEO Hector Ruiz and President and Chief Operating Officer Dirk Meyer. In addition, under the terms of the acquisition agreement, two ATI directors will join AMD’s board of directors upon closing of the transaction.
