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Analyst won't be surprised if IBM buys AMD

Neither would we, but we don't think it'll happen

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IBM is going to buy AMD, sooner or later.

That's how Illuminata analyst Jonathan Eunice is being widely quoted on the web, though the Austin American Statesman article that mentions Eunice's views actually says the analyst won't be surprised if it happens.

A minor semantic point, but one that shifts Eunice's comment away from all-out prediction to something a little more arse-covering.

Eunice's reasoning, according to the paper, centres on the tightening ties between the two companies. IBM is selling a server based on AMD's 64-bit Opteron chip, and the two firms are jointly developing new 65nm and 45nm fabrication processes.

To which we can add the ongoing industry rumours that IBM is building a fab for AMD.

The two companies' design efforts are based in IBM's East Fishkill facility - the same location that's playing host to Big Blue's advanced 130nm production line, out of which 64-bit PowerPC 970 processors will flow for Apple and future GeForce FX graphics chips for Nvidia. It's all part of IBM's scheme to expand its role as one of the world's leading chip foundries and challenge the likes of Taiwan's TSMC and UMC.

The rumoured AMD-oriented fab may arise from a deal the two companies have struck, to enable AMD to reduce the latter's need to invest in costly chip-making plant. There's no doubt that the cost of developing next-generation chip production techniques and facilities is increasing. AMD's decision to partner with IBM on the development of 65nm and lower processes is undoubtedly a way of sharing the ballooning cost of such work. But it also allows the two companies to align their production processes, making it much easier for AMD to begin farming out chip manufacturing to IBM.

When the rumours that IBM is building a fab for AMD first surfaced, we asked what might motivate Big Blue to build a plant then turn it over to another company. A firm guarantee of demand might well be enough to secure such a commitment.

The rumours may be incorrect, of course, and the fab under construction is simply part of IBM's ongoing investment in R&D and then production fabs, whether they're used to punch out future Opterons and Athlons or not.

In any case, the synergy between the two companies is there. Many senior AMD staff are ex-Motorola folk, some of whom who worked on the PowerPC project alongside IBM staffers.

But that's not the same thing as buying the company. If AMD's goals do focus on a longer term shift toward becoming a fabless company, or at least reducing its exposure to the financial risks involved in running its own plant, a slimmed down AMD would arguably be of less value to IBM, which already has plenty of chip design expertise.

IBM's stance on the matter will emerge over time as the market demand for Opteron and Athlon 64 becomes clearer, and its own low-end 64-bit strategy, based on the 970 and its successors, emerges. Yes, IBM is offering an Opteron-based server, but it has long offered x86-based machines alongside its own Power-based rigs. Support for one does not preclude ongoing support for the other, and there's little sign that it has changed its mind on that score.

Right now, buying chips from AMD for a part of its server range makes more sense than buying the entire company just to get those chips a little cheaper. Far better to leverage its design - and potentially production - relationship to secure a better discount. ®

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