It would be the deal of the decade, although for some semiconductor industry observers, it borders on extreme speculation.
As opinion abounds about Advanced Micro Devices Inc.'s future, some analysts see it playing out this way: Nvidia Corp.'s Jen-Hsun Huang swoops in and sweeps aside regulatory hurdles, x86 licensing issues, and howls of protest from customers and rival suitors to rescue AMD and secure his company's future in the graphics processor market.
Huang, president, CEO and co-founder of Nvidia, isn't commenting and his company hasn't made public overtures to AMD. Yet, industry observers count Nvidia among the companies that could conceivably acquire AMD. Others include IBM—a technology partner of AMD, but a company that chairman and CEO Sam Palmisano has been steering away from technology hardware and toward software and services; Samsung Electronics; and a bunch of private equity firms.
Indian investors have also been mentioned as possble suitors.
Financing the transaction might be problematic in today's tight lending market, and the assumption of more than $5 billion in AMD debt could spark a shareholder revolt at Nvidia. Additionally, Nvidia would be taking on AMD's manufacturing problems and becoming a direct rival of Intel Corp., one of the industry's better-financed and toughest competitors.
Despite the long string of potential problems, analysts and industry observers insist that the idea of Nvidia purchasing AMD has significant merit. For one, the merger would help fill glaring holes in their respective operations and give the combined company a better chance of survival through the pooling of product and financial resources.
"If you look structurally at the industry, something has to give in terms of product positions at both Nvidia and AMD," said Doug Freedman, an analyst at American Technology Research. "The problems related to such a deal can be overcome."
Several industry players in Silicon Valley are rooting for an Nvidia-AMD merger. George Haber, a serial entrepreneur in Silicon Valley who has served on the boards of Zoran and 3dfx, said the move "would be good for AMD shareholders" and "would present "the most severe challenge" for Intel.
Haber said he arrived at that conclusion because he knows Huang personally, not because he has a financial interest in either company.
"Jen-Hsun [Huang], just like [Steve] Jobs, [Larry] Ellison, [John] Chambers and a few others, has an enormous passion and drive for what he does, and that passion or even obsession is the source of his success," he said. "[Successful CEOs] are like poets and artist that inspire, innovate and create. ... such passion is often replaced at many public companies by the financial greed of bureaucrats or smart MBAs with no real experience."
Nvidia did not respond to requests for comment, but in the past it has acknowledged the growing challenges it faces as AMD and Intel push for platform or integrated graphics solutions rather than the standalone, discrete graphics that account for the bulk of Nvidia's sales.
"As Intel and AMD continue to pursue platform solutions, we may not be able to successfully compete and our business would be negatively impacted," Nvidia stated in a recent quarterly filing with the U.S. Securities and Exchange Commission.
Concern about Nvidia's ability to integrate the x86 processor into its graphics core is driving calls for the company to consider purchasing AMD. However, no one would even suggest such a transaction had AMD's stock price not fallen so sharply over the last year or so.
Nvidia, with $4 billion in annual revenue, is smaller than AMD, which in 2007 recorded revenue of $6 billion. But Nvidia is considered a faster-growing company and has a market value about three times that of AMD. On Tuesday, Feb. 26, Nvidia's shares closed at $22.50, giving it a market value of $12.5 billion, compared with $4.1 billion for AMD on the same day.
"That theory gets floated typically when AMD's stock price is down," said an industry observer, who declined to be named. "How Nvidia might get access to x86 processor is the key issue. There are other ways for them to do this than by buying AMD."
AMD has its share of difficulties. Its acquisition of ATI was supposed to help it better compete with Intel, but ironically, it also strengthened Nvidia, increasing its market share and resulting in the double-digit revenue growth that boosted Nvidia's stock price.
Struggling with integration issues, AMD-ATI saw its share of the discrete graphics IC market slip to 33 percent in fourth-quarter 2007, from 45 percent in the year-ago quarter, while Nvidia's share surged to 67 percent, from 54 percent, according to Mercury Research.
Had ATI remained an independent entity, it is possible that it would be mentioned today as a potential buyer for AMD. ATI was purchased for $5.6 billion in cash and stock in October 2006, but AMD's current market value is below that dollar amount.
With zero debt, almost $2 billion in cash at the end of its fiscal year on Jan. 27, and a loftier stock value, Nvidia could possibly finance the acquisition of AMD, although the transaction would greatly increase its debt-equity ratio. To close the deal, Nvidia would have to offer a hefty premium to AMD's stock price—possibly 50 percent or more—and assume responsibility for AMD's $5 billion in long-term debt.