Another big chip deal in works
Advanced Micro Devices to buy Xilinx for $35B in stock
SAN JOSE, Calif. — Advanced Micro Devices Inc. agreed to buy Xilinx Inc. for $35 billion in stock, one of the largest chip acquisitions ever, a transaction that gives the former industry also-ran more products and a bigger research budget to challenge leader Intel Corp.
The deal announced Tuesday puts Advanced Micro Devices in a place it wants to be: competing more fiercely with Intel at a time when a global pandemic is driving demand for tech ever higher. And it accelerates an already rapidfire pace of mergers and buyouts in the industry.
More Zoom meetings, more orders online, and more upgrades for companies trying to meet new demands of millions staying at home have led to a seemingly insatiable appetite for computer chips.
“Joining together with AMD will help accelerate growth in our data center business and enable us to pursue a broader customer base across more markets,” Xilinx Chief Executive Officer Victor Peng said in a prepared statement Tuesday.
Advanced Micro Devices and Xilinx is a huge tie-up in a season of buyouts for the semiconductor industry.
Just last month, Nvidia said it would buy Arm Holdings for up to $40 billion and set up an artificial intelligence research center in Cambridge, England, where Arm is headquartered.
In July, Maxim Integrated Products was snapped up by Analog Devices for more than $20 billion.
Xilinx stockholders will receive 1.7234 shares of Advanced Micro Devices stock for each Xilinx share they
hold, or approximately $143 per share of Xilinx stock.
Advanced Micro Devices stockholders will own about 74% of the combined company, with Xilinx stockholders owning approximately 26%.
Advanced Micro Devices CEO Dr. Lisa Su will lead the combined company as chief executive. Peng will join Advanced Micro Devices as president, responsible for the Xilinx business and strategic growth initiatives. At least two Xilinx directors will join the Advanced Micro Devices’ board.
Since taking over in 2014 when Advanced Micro Devices was in crisis, Su has slashed debt and overseen the development of more powerful processors. Revenue and profit have surged and the stock has soared. Now Su is using that currency to snap up a company with complementary products that generate steady cash flow.
“We’ve built a very strong execution capability. That’s core to my DNA and core to today’s AMD,” Su said in a phone interview. “This is about what’s the next step for AMD.”
The deal is expected to close by the end of next year, but still needs approval from regulators and shareholders of both companies.
The transaction is partly driven by the growth of big cloud-computing providers such as Amazon.com Inc. and Alphabet Inc.’s Google. Those companies are spending heavily on new data centers to meet a surge in demand for computing power delivered via the internet. They’ve become major purchasers of server chips, which run thousands of computers that are packed into these data centers.
For decades, Advanced Micro Devices was seen as an Intel follower that mainly won sales with lower prices. But the company has lately grabbed a lead over Intel in some key measures of computing performance, while its larger rival has suffered technological and financial stumbles.
Last Thursday, Intel reported a 29% decline in quarterly profits, which caused its stock to fall more than 10%.
Xilinx, founded in 1984, is the biggest maker of a class of chips that can be reconfigured for a variety of specialized tasks after they leave the factory. Such field programmable gate arrays, as they are called, have long been particularly popular in telecommunications applications, such as cellular base stations now being upgraded for the latest 5G technology.
Xilinx has also been one of the biggest chip companies hurt by trade limits on China’s Huawei, a major maker of networking equipment that is one of Xilinx’s biggest customers. The company last week said revenue declined 8%.
But Xilinx’s gross margins are much higher than Advanced Micro Devices’, and the company continues to generate considerable cash. Xilinx’s market value currently stands at $28 billion, reflecting a sharp jump after The Wall Street Journal reported deal talks between the companies on Oct. 8.
Advanced Micro Devices’s interest in Xilinx emulates a path taken by Intel. In 2015, Intel entered the same business by paying $16.7 billion for Altera, Xilinx’s main competitor. That deal, inspired partly by the prospect of producing Altera chips in Intel factories, has failed to generate big returns as Intel’s manufacturing processes have fallen behind rivals.
Advanced Micro Devices relies heavily on external manufacturing partners, as does Xilinx — particularly Taiwan Semiconductor Manufacturing Co., which has grabbed a lead in packing smaller transistors on each chip. Both companies also have pushed new technologies for creating new products from packaging multiple chips together.