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May 31, 2006
AMDATI
Speculation has been legion for years that ATI is in play, and it seems to be heating up again. The latest supposed acquirer? AMD.This one actually makes sense, and the timing is right on both sides. I give it a more than negligible chance of happening -- which is like saying that it's not 0.1%, maybe more like 2%.
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I'm not sure how this makes sense.
1) AMD has never indicated any desire to get good at consumer technologies like cell phones, game boxes or TVs. Yet those are ATI's fastest growing markets.
2) ATI and Intel have a very close relationship, including IP and filling in holes for INTC's chipset production - that would presumably not stay as close if AMD became the new owner of ATI. If 50% of ATYT's business went away because AMD was the new owner (a not unreasonable assumption over time) the acquisition would make absolutely no FINANCIAL sense for AMD.
3) AMD needs to spend a lot of dough building new fabs to satisfy demand for its excellent CPUs. Buying ATYT on top of those capex plans would be hard to finance.
4) Why would AMD with 60% gross margins want to buy a company with 30% margins? Sure NVDA is currently higher than that...but if you view ATYT and NVDA as a "two-body" problem over multiple PC business cycles and include all the inventory write-downs they usually have to take, the gross margins average well UNDER 30%.
5) Why fix what isn't broken? Currently AMD and INTC benefit as free riders from the internecine battles between NVDA and ATYT. The two companies spend billions of dollars of R&D over the last 5 years developing GPU technologies that drive CPU sales. Why should AMD fund that development? A development that over time has been producing lower and lower returns on investment?