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AMD, ATI agree acquisition deal?

Approach with caution...

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AMD has reached an agreement with ATI to buy the graphics chip company. An official statement will be made shortly - if, that is, you believe a report on a Chinese-language website citing a single source said to be close to the negotiations.

We're taking this with a big pinch of salt. The unnamed source, cited by Sohu.com, would provide no details of the deal.

The claim that AMD wants to buy ATI was made back in late May this year by RBC Capital Markets analyst Apjit Walia. For evidence of such interest, the market watcher could only point to AMD's cash pile and its desire to boost output over the next few years. He also said ATI had an attractive stock price.

ATI's market capitalisation is $3.83bn, its share price $15.10 at the close of trading on Nasdaq yesterday. AMD's share price closed at $23.83, leaving it with a market cap of $11.54bn. It quit Q1 FY2006 with $2.63bn in the bank.

Yesterday, AMD said it expects its Q2 sales to total $1.215bn, up 52 per cent up on the year-ago quarter but down nine per cent on the previous three-month period. The chip maker's second-quarter numbers are due 20 July.

If AMD does buy ATI, it will have to tread very carefully to avoid annoying its other chipset partners like Nvidia and VIA. Maybe it wouldn't mind, using an ATI acquisition as the basis of its own integrated and discrete chipset product lines in a bid to match Intel's chipset offerings.

Such a strategy has opportunities, particularly now AMD's marketshare is growing, but there are big risks too. ®

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