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In one of its biggest AI deals to date, AMD has announced that it is spending a whopping $4.9 billion to buy server manufacturer ZT Systems. ZT's products target a variety of industries, from 5G telecommunications to computing platforms, storage, and GPU servers, and the firm will be a part of AMD's bread and butter Data Center business division. As per the SEC filing, 75% or $3.675 billion of the deal will be financed by cash while the rest will be through stocks, with AMD expecting the deal to be completed by the first half of 2025.
AMD Expects ZT Systems Transaction To Be Accretive By 2025 End
ZT Systems is a server designer and manufacturer, and by the looks of it, AMD is hoping to expand its design capabilities through the deal and expand its end to end AI offerings. Unlike NVIDIA, AMD is able to sell x86 CPUs for data centers and other use cases, enabling it to provide a diversified product roadmap for AI or other workloads.
After the deal closes, ZT's CEO, Frank Zhang, will lead the manufacturing business, while its president, Doug Huang, will lead the design business. The company will be part of AMD's Data Center business division, and as per AMD, it will find a"strategic partner to acquire ZT Systems’ industry-leading U.S.-based data center infrastructure manufacturing business," a move that should help protect AMD's margins.
Following the close, AMD will add approximately more than 1,000 of ZT's engineers. AMD expects the deal to close by the first half of next year, and for the financial benefits to start appearing on its income statement by 2025 end on a non adjusted basis. Previous acquisitions, such as AMD's acquisition of Xilinx were reflected on the income statement for multiple quarters as the firm paid off the costs of the deal.
As per the complete agreement between AMD and ZT Systems and other disclosures, AMD will pay ZT $3.375 billion in closing cash consideration along with $300 million in cash through contingent consideration. This means that 75% of the deal will be financed with cash, implying that AMD might have to take out additional loans to finance the deal.
The deal's closing will depend on regulatory approval, and if approved, it will allow AMD to expand its presence in the AI chip market. The firm estimates that the data center accelerator market for artificial intelligence workloads will sit at $400 billion in 2027, and ZT's experience in designing these systems should help provide AMD a leg up in the industry when it comes to selling its products.
AMD's shares were up by a modest 2.3% in pre market trading today, and the firm plans to hold a call later during the day to share additional details for the deal. After having gained 52% year to date until March, the stock has been down 29% since then as the market takes a breather from its AI frenzy, and investors continue to eye earnings reports by keeping the revenue generated by AI software in mind.
Updated fourth paragraph at 11:50 ET with AMD's clarification regarding employee retention and restructuring.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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