AMD to splash out $5.4bn on ATI

AMD on Monday announced a deal to acquire graphics chipmaker ATI Technologies for $5.4bn, a move intended to increase AMD's mobile computing and consumer electronics capabilities and help it battle archrival Intel.

AMD will pay $4.2bn in cash and issue 57 million shares of common stock to ATI shareholders. Through the acquisition, AMD is looking to expand its efforts in high-growth markets such as consumer digital media and mobile computing, and bolster its position with large corporate customers.

"This strategy has been in the making for a number of years and culminated with the ATI acquisition," said Hector Ruiz, AMD's chief executive, during a conference call with analysts. "Visual computing is playing a larger role in what we are doing going forward."

AMD's Opteron family of processors has taken market share from Intel in some areas, although Intel still dominates the overall market and offers chipsets with integrated graphics capabilities.

ATI will add graphics chips and chipsets to AMD's offerings. AMD is also hoping to use ATI to compliment its desktop business with ATI's strong presence in mobile computing.

Beginning in 2008, AMD aims to develop chip platforms that integrate microprocessors and graphics processors. AMD plans to develop these chips for use in media, data, graphics and general-purpose uses.

Partnerships and competitors
The companies' current partnerships may become an issue in the future. AMD partners with ATI rival Nvidia for graphics chips, while ATI is an Intel partner.

AMD said it expects to continue its partnership with Nvidia, offering customers a choice of two graphics technologies. ATI, meanwhile, plans to continue with its existing product road map for the next six months, which includes 'ramping up' on the Intel side.

Although the pending merger will bring AMD and ATI under one roof, there are no plans in the near future to combine the manufacturing of AMD and ATI chips in an integrated foundry, Ruiz said.

He noted that microprocessors are manufactured using more mainstream techniques than those required for graphics chips. Both companies are currently facing challenges meeting their existing manufacturing needs, AMD and ATI executives said.

Talk of a merger between the two companies first emerged in May. Over the weekend, the rumours intensified until it was almost considered a done deal on Sunday.

The deal is expected to close in the fourth quarter of the year and lead to combined annual sales of $7.3bn. The company expects to have a combined workforce of 15,000.

AMD has obtained a $2.5bn term loan commitment from Morgan Stanley Senior Funding which, together with combined existing cash, cash equivalents and short-term investment balances of about $3bn, provides full funding for acquisition, the chipmaker said. The deal is subject to the approval of ATI shareholders and regulators in the US and Canada.

Reuters contributed to this report.