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The
deal, which AMD expects to close at the end of 2021, will create
a combined company with 13,000 engineers and a completely
outsourced manufacturing strategy that relies heavily on Taiwan
Semiconductor Manufacturing Co Ltd (TSMC) <2330.TW>.
The two U.S. firms have benefited from a more nimble approach to
grab market share from Intel, which has struggled with internal
manufacturing.
AMD has long been Intel's chief rival for central processor
units (CPUs) in the personal computer business.
Since Chief Executive Lisa Su took over AMD in 2014, she has
focused on challenging Intel in the fast-growing business of
data centers that power internet-based applications and services
and are fuelling the rise of artificial intelligence and
fifth-generation telecommunications networks.
Xilinx has also been working to penetrate data centers with
programmable processors that help speed up specialized tasks
such as compressing videos or providing digital encryption. Its
primary rival in the area, Altera Corp, was scooped up by Intel
for $16.7 billion in 2015 in what was then Intel's largest-ever
deal.
"There are some areas where we're very strong, and we will be
able to accelerate some of the adoption of the Xilinx product
family," Su told Reuters in an interview. "And there are some
areas where (Xilinx CEO) Victor (Peng) is very strong, and we
believe that we'll be able to accelerate some of the AMD
products into those markets."
The tie-up comes at a time when Intel's manufacturing technology
has fallen years behind TSMC's. AMD, which spun off its
factories nearly a decade ago, has rocketed ahead of Intel with
chips that perform better. The performance edge helped AMD gain
its best market share since 2013 at slightly less than 20% of
the CPU market, which has in turn pushed its shares up 79% this
year.
Shares of AMD fell about 4% in premarket trading, while those of
Xilinx surged over 12% after the deal was announced.
Xilinx also uses TSMC's factories, called "fabs" in the
industry, to make its chips, with both U.S. companies using
modular designs that let them swap out different pieces of a
chip to avoid bottlenecks or delays.
"We ended up with TSMC, and have stayed with them, not due to
any contractual reason - we could go to any fab at any time -
but because they are best-in-class," Peng told Reuters in an
interview. "It's about the choices you make."
Under the deal, Xilinx shareholders will receive about 1.7
shares of AMD common stock for each share of Xilinx common
stock, valuing Xilinx at $143 per share, or about 24.8% higher
than its $114.55 closing price on Oct. 26. AMD shareholders will
own about 74% of the combined firm, with Xilinx shareholders
owning the remaining 26%.
AMD's Su will lead the combined company as chief executive, with
Xilinx's Peng serving as president responsible for the Xilinx
business and strategic growth initiatives. The companies expect
the deal to generate $300 million in cost savings.
AMD also reported earnings on Tuesday earlier than scheduled. It
reported revenue and adjusted earnings of $2.80 billion and 41
cents per share, beating Wall Street expectations of $2.57
billion and 36 cents per share, according to IBES data from
Refinitiv.
Bernstein analyst Stacy Rasgon said there is a danger that a
major acquisition in an adjacent chip market could distract
AMD's leadership while Intel fights to regain market share.
"The worry would be, AMD has this great self-grown story of
their own, which is just starting to play out. Why are you doing
this now? Is it just opportunistic? Does it distract from the
current story?" he said.
Xilinx's Peng, however, said meetings between the two companies
have already revealed they have very similar methods for
designing chips.
"I'll be honest, I don't think it's really as challenging as
some other combinations," he said. "I had one of my leadership
teams who was not familiar with AMD say to me after a meeting,
'Boy, they're just like us.'"
(Reporting by Stephen Nellis in San Francisco and Munsif
Vengattil in Bengaluru; Editing by David Gregorio, Christopher
Cushing and Anil D'Silva)
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