Feeds

Dell to buy AMD?

All hat and no cattle

The Essential Guide to IT Transformation

With Intel and Advanced Micro Devices both cranking the clocks on their respective Xeon and Opteron server processors this week and Dell admitting that it's on the prowl for acquisitions, tongues have started to wag about the possibility of PC and server maker Dell snapping up AMD.

Barron's, the supposedly more thoughtful part of the Fox/Dow Jones media empire, reported Monday afternoon that AMD's shares were up 5 per cent because of rumors that it might be acquired by Dell. Bloomberg chimed in a few hours later, quoting Patrick Wang, an analyst at Wedbush Securities, as saying there was "chatter" about a Dell deal to buy AMD although he conceded it was a "far-fetched possibility."

Not that the suddenly chip-happy Larry Ellison, co-founder and CEO of Oracle, talking about buying semiconductor companies last October - and rumors swirling about AMD in particular - could qualify as "near-fetched." (Tip of a hat to George Carlin.) At the time, Dirk Meyer was president and CEO of AMD, and while he denied that AMD was for sale, he also said that AMD was "happy to listen to any proposal" that was in the interest of shareholders.

Meyer was sacked by AMD back in early January, so it his opinions are moot at this point. But it seems unlikely that Dell would spend any of its $14.4bn in cash to acquire AMD. While this might be fun, it is not what Dell does.

For one thing, Dell was dragged kicking and screaming to AMD Opteron chips in the past decade and it has learned, through the issues with both Xeon and Opteron chips, to not tie itself too tightly with any chip maker. That is why Dell is an ardent supporter of both Xeon and Opteron chips.

AMD sells products to Dell's competitors (although not as many as it used to, mind you, with IBM giving the Opteron tepid support and Oracle killing off its Opteron products), and a big chunk of its business and therefore that market cap only exists because AMD has Dell and others as partners. The minute Dell bought AMD, it would inherently be worth less money because Dell would only want AMD to make its own chips for servers, storage, and PCs and leverage these as an advantage it held over its competitors.

It is hard to say how a Dell acquisition of AMD would affect revenues, but let's just concede that chip volumes would go down and revenues would be nowhere near the $6.5bn from 2010 and you can forget about even the $471m in net income AMD managed to scrape together. The losses would be measured in the billions.

If Dell wanted to do something interesting, it would become a licensee of the ARM architecture and start building its own chips for tablets, clients, and servers. And that would cost a heck of a lot less than buying AMD, which has a market capitalization of $5.8bn.

Yes, Dell, AMD, and Perot Systems are all from the Lone Star State, and Dell and AMD both hail from the Austin, Texas area. So there is a lot of geographical compatibility. But it seems highly unlikely that Michael Dell would spend something on the order of $7bn to $8bn to buy a chip maker that would completely alienate it from Intel. Dell is far better served having Intel and AMD grind against each other and offering better chips at lower prices.

In a conference call with Wall Street analysts today going over its fourth quarter of fiscal 2011 financial results, Dell, the man, was asked about the acquisition strategy of Dell, the company.

"I think it will be very similar to what you have seen us do," Dell explained, adding that the company likes to do small deals where it can find a product it doesn't have and push it through its sales channel and squeeze some profits out of it through its supply chain.

Perot Systems, at $3.9bn, was a bit of an exception, just like IBM's acquisitions of Lotus and Cognos were. (IBM has a very similar acquisition strategy to Dell). If Dell could get IBM to buy the ClearPath mainframe business from Unisys, it is conceivable that Dell might acquire Unisys. (This deal would have made more sense many years ago, when Unisys was providing support for Dell products).

In any event, what Dell, the man, said sure does not indicate that Dell, the company, wants to buy AMD, no matter what the silly chatter on Wall Street is going on about. They're all hat and no cattle. ®

The Essential Guide to IT Transformation

More from The Register

next story
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Sonos AXES support for Apple's iOS4 and 5
Want to use your iThing? You can't - it's too old
Stick a 4K in them: Super high-res TVs are DONE
4,000 pixels is niche now... Don't say we didn't warn you
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
Too many IT conferences to cover? MICROSOFT to the RESCUE!
Yet more word of cuts emerges from Redmond
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
The Essential Guide to IT Transformation
ServiceNow discusses three IT transformations that can help CIO's automate IT services to transform IT and the enterprise.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Build a business case: developing custom apps
Learn how to maximize the value of custom applications by accelerating and simplifying their development.