Taipei, Taiwan -- Jerry Sanders, a walking symbol of controlled chaos, is probably having a good laugh. In one bold move, the company he co-founded has shaken up PC industry supplier relationships in the near term and revived the possibility of CPU and graphics processor integration in the long term, as the personal computer evolves into an entertainment platform.
Chairman emeritus Sanders no longer directs the moves at Advanced Micro Devices Inc. But the company's acquisition last week of ATI Technologies Inc. showed that the always plucky AMD still bears Sanders' contrarian stamp.
To top it off, the deal thrusts AMD into play for the lucrative game of high-end mobile phones and HDTVs, something Intel has tried in fits and starts. "In the world of converging technologies, we think it is a great advantage to join with a company that has a fast-growing, successful consumer electronics business," said AMD chairman and CEO Hector Ruiz during a conference call after the merger announcement.
The culmination of weeks of speculation, the merger nonetheless caught many by surprise. Some whistled over the $5.4 billion price tag. Others tsk-tsked that AMD and archrival Intel Corp. were supposed to be selling business units to focus on their CPU lines, not plowing into risky, multibillion-dollar takeovers.
Indeed, the deal is generating the most buzz in the industry since Hewlett-Packard took over Compaq and Lenovo Group bought IBM's PC division. All three deals were driven by a Darwinian trend of consolidation instigated by ever-cheaper computers.
"It [AMD] either had to do a strategic partnership or go and acquire," said Michel Mayer, chairman and CEO of Freescale Semiconductor Inc. "But it's going to be a difficult acquisition."
To effectively battle Intel, AMD needed more control over its platforms, specifically the chip sets. With the acquisition of graphics chip powerhouse ATI, AMD gains high-end chip sets it can bundle with CPUs to boost its competitiveness in weak areas, like notebook PCs. AMD figures it will eventually lose ATI's chip set revenue derived from Intel platforms, a decline the company believes will be overshadowed by the upside gain.
Ruiz was quick to play down inferences that the acquisition essentially locks out third-party chip set makers, which enjoy higher margins from AMD-based PCs and offer OEMs a variety of choices to hit different price/performance targets.
AMD hasn't emphasized platforms. In fact, during an interview at Taiwan's Computex show in June, as rumors were flying about a deal, AMD executive Teresa de Onis touted the "freedom" system designers have when using AMD chips, saying that AMD has not partnered with one company or another to set mandated parts lists in its wireless and media PC efforts. Intel has done so with Centrino and Viiv.
Dirk Meyer, AMD president and chief operating officer, said the company will continue to open its interfaces to encourage competition among chip set vendors. "If any of our customers want to buy products from somebody else that meets their needs, we applaud that," said CEO Ruiz.
That applause will fall on deaf ears in Taiwan, where chip set vendors are wringing their hands about the consequences of the AMD-ATI merger. In particular, Via Technologies Inc. could suffer. Via has long been a partner of AMD, and at one time was its leading chip set supplier--a position now held by ATI rival Nvidia Corp. The acquisition will increase the threat to market share for third-party vendors like Via, eventually forcing them to duke it out in the lower-margin Intel-based chip set market.
"There probably won't be much impact in the short term, because ATI doesn't really have much in the entry-level platforms for AMD like we do," said Keith Kowal, marketing manager for chip set platforms at Via. "We are still evaluating what will happen over the long term."
Nvidia, predictably, sees the acquisition as an opportunity. The company does about $100 million per quarter in AMD chip sets and said it will continue to support AMD processors. "It's the best thing that ever happened," said Chris Malachowsky, co-founder and senior vice president of engineering and operations at Nvidia. "We are now the sole surviving GPU [graphics processor] company."