A deal had been expected among suppliers in Taiwan's technology community last month. Taiwan-based sources close to the two companies said officials were making eyes at each other during Computex, one of Asia's largest IT trade shows.

In fact, the rumors about the AMD-ATI merger have been persistent for months, but the chatter intensified last Friday.

Meanwhile, in the blockbuster announcement, the combined AMD-ATI company would have achieved approximately $7.3 billion in total consolidated sales during the last four quarters with a workforce of approximately 15,000 employees. Headquartered in Sunnyvale, Calif., the combined company will maintain sales, design and manufacturing centers worldwide and major business centers in Silicon Valley, Austin, Texas and Markham, Ontario.

Under the terms, ATI President and CEO Dave Orton will serve as an executive vice president of the ATI business division, reporting to the AMD Office of the CEO, comprised of Chairman and CEO Hector Ruiz and President and Chief Operating Officer Dirk Meyer. In addition, under the terms of the acquisition agreement, two ATI directors will join AMD's board of directors upon closing of the transaction.

AMD anticipates that it will reduce operating expenses by approximately $75 million for the combined company by the end of 2007.

The deal is expected to have wide-ranging implications for the industry. Suppliers in Taiwan have been forced to consider how it woud affect their businesses.

While AMD has thus far only focused on the processor business, Intel Corp. has been taking advantage of its processor and integrated graphics business. If the acquisition goes through, the deal would give AMD "what Intel already has, plus more—a discrete graphics chip business Intel doesn't have," said market researcher Jon Peddie. Noting aggressive cost procurement reduction programs at Hewlett-Packard, Dell and others, Peddie said, "The best way to reduce the cost for PC vendors is to deal with fewer suppliers."

The acquisition of ATI (Markham, Ont.) also helps AMD control pricing on motherboards carrying its silicon. Intel provides CPU, chips et and networking ICs, in addition to having a leading motherboard division. "Intel drops prices on motherboards, and everyone else has to follow," said a product manager at Gigabyte Computer, who spoke on condition of anonymity.

"ATI shares our passion and complements our strengths: technology leadership and customer centric innovation," Ruiz said in a statement.

Added Orton: "Joining with AMD will enable us to innovate aggressively on the PC platform, and continue to invest significantly in our consumer business to stay in front of our markets."

Originally, the deal was based on conjecture by one analyst at RBC Capital, who issued a note on March 31 saying that a deal was in the works, but offered scant evidence to support it. Aside from causing a spike in ATI's share price, skepticism held sway. At Computex, Taiwanese executives said they had follow-up conversations that led them to believe a deal is imminent.

"AMD has been shopping around for some time for a chip set and, to some extent, a graphics business. So this makes sense," said a senior executive at a Taiwan chip set company familiar with the deal. Other sources at motherboard makers also say something is in the works.