AMD Announces $35 Billion Xilinx Acquisition, Hopes To Target Multiple Markets

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Chipmaker Advanced Micro Devices Inc announced today that it will acquire programmable-silicon manufacturer Xilinx after rumors of the transaction were reported by The Wall Street Journal. AMD's decision comes as the semiconductor industry starts to consolidate its resources to target the upcoming wave in artificial intelligence, data center and cloud computing platforms - the latter two of which have seen their demand go up during the pandemic as corporations start to invest in remote working platforms and populations all over the globe start to increasingly rely on home-based entertainment platforms.

AMD To Pay $35 Billion For Xilinx As Company Hopes To Target Acquiree's Established Markets Through Deal

AMD's decision follows rival graphics processing unit (GPU) designer NVIDIA Corporation's announcement to acquire British chip design house Arm last month. Through the deal, NVIDIA's CEO expects to gain access to Arm's existing customer base and effectively target growing areas such as artificial intelligence.

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With this deal still subject to regulatory approval – a fact that is at the center of discussion in both the U.S. and China, whose authorities are expected to present the largest amount of resistance to the deal, AMD's management also seems to have decided to expand its revenue base.

While NVIDIA will add licensing revenues to its income statement as another source of revenue should its acquisition receive approval, AMD will now target markets in which the company currently has little to no presence. This will enable the CPU and GPU designer to better compete with chip behemoth Intel Corporation, who saw another drastic drop in its market capitalization last week. Additionally, it intends to expand its data center business through the acquisition and target the cloud and edge markets via a larger portfolio that also uses adaptice computing platform – which Xilinx plans to target through its Versal product lineup.

As opposed to AMD, NVIDIA and Intel who design, and in Intel's case manufacture, use-specific application-specific integrated circuits (ASICs), Xilinx is known for its field-programmable gate arrays (FPGAs) – chips that can be customized by the end customer as their name suggests. Out of the three ASIC designers, only Intel manufacturers and sells FPGAs, yet due to the fact that Xilinx is able to divert more attention to the products due to its smaller size and portfolio, the company leads Intel in FPGA market share.

The Xilinx Spartan-3 FPGA is visible on an XCM-001-400 printed circuit board (PCB).

AMD Expects Deal To Close By End Of Calendar Year 2021

Through the deal, AMD will end up paying Xilinx shareholders $35 billion in an all-stock transaction. They will receive 1.7234 AMD shares in exchange for each Xilinx share, based on AMD's share price of $82.9726. This represents the ten-day weighted average share price of the CPU designer until the 8th of this month.

Following the deal's closing, AMD shareholders will own 74% of the new entity with the remainder belonging to Xilinx shareholders. As opposed to the bearish sentiment expressed. by Wall Street analysts, who had expected the deal to be rejected by Xilinx's board of directors on the premise that the company was expected to capitalize on the forecasted growth in AI and other platforms, the boards of both companies have unanimously approved the acquisition.

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However, Xilinx shareholders are still to provide their blessing for the affair, following which AMD will also have to secure regulatory approval. Should the chip designer cross both these hurdles, then its current chief executive officer Dr. Lisa Su will head the new entity. AMD also expects to achieve $300 million in cost savings through efficiencies roughly a year and a half after the deal closes – which the chipmaker expects will take place at the end of the calendar year 2021. These efficiencies will stem through savings in raw material costs and joint-facility use by the workforce of the new entity.

Xilinx's C.E.O. Mr. Victor Peng will join AMD as president tasked with overlooking his company's growth strategies, and two other board members of the FPGA maker will join AMD's board. The deal's announcement came as AMD also released its earnings report for the third quarter of 2020, with the chip designer beating estimates for GAAP and non-GAAP earnings per share (EPS) and revenue. In premarket trading, AMD's shares are currently down by 2.10% over yesterday's close at the time of publishing.