AMD + ATI: The A-Team?

The biggest headline in the tech industry, AMD plans to acquire ATI for US$5.4bil. Can this merger really be for the better or for the worst? Well, both AMD and ATI are certainly very optimistic about the prospect of the merged company but I’m just going to take it with a pinch of salt.

AMDATI

The AMD + ATI merger promise to complement both parties as the GPU of today (and the future) moves towards the programmable logic era to resemble more like a CPU. AMD has already managed to integrate the memory controller which was traditionally on the Northbridge chipset into the Athlon 64. Perhaps with the ATI merger, AMD could integrate a graphic processing unit (GPU) and/or a Southbridge chipset into the CPU.

Is AMD moving towards system-on-a-chip? Well, it could be a very huge possibility given the range of expertise that AMD has now acquired from the ATI merger. However, the fruits of such merger would easily take a couple of years before it materialized. Perhaps year 2008 would be the earliest. While Intel is moving towards a platform solution, it seems like AMD plans to take it a step further or at the very least, emulate what Intel does.

This merger isn’t going to be a smooth ride as both AMD and ATI has a contrasting relationship in the industry. ATI’s biggest rival, nVidia is currently AMD’s top chipset supplier and partner. ATI on the other hand is Intel’s current major graphics chipset supplier for the Intel platform. There’s a contrasting agreement between both the companies (AMD and ATI) with Intel with regard to the Front-Side-Bus (FSB) licensing.

AMD is not as deep pocketed as Intel to begin with; the price that AMD paid to acquire ATI will be financed with a US$2.5bil loan from Morgan Stanley. AMD is certainly stretching its financial book to the max to expand its fabrication (manufacturing) facilities in Dresden and a proposed site in New York as well as betting its future product’s success with this ATI acquisition.

Perhaps AMD does indeed have something up its sleeve to keep itself afloat in the midst of a tougher competition with a fully revitalized Intel product line-up (at least until a new revitalized architecture could be release). Otherwise, AMD may have difficulty to reap significant profit margin in an attempt to maintain a good price/performance ratio to ensure its competitiveness with Intel in the midst of a price war. AMD would then be financially in a less favorable position.

In the past, AMD has depended on its profitable flash memory division to keep the company afloat when its processor division isn’t doing particularly well. Along the way, it has also spin-off many of its non-processor related divisions to become the processor focused AMD of today. Is ATI going to be the little cash cow division that AMD could rely upon to keep itself afloat while working on the next generation of processor during the possibly tough financial time?

Well, the GPU sector has been much more competitive in nature and any slip-up in ATI’s product could affect its market position almost immediately especially with a competitive competitor like nVidia. In fact, nVidia has reacted to the announcement with joy with the perception that ATI (their only other competitor) has given up in the high-paced high-end graphics rat race and leaving nVidia being the sole graphics processing chip provider. The folks at nVidia may have a point, but things could also work out for the better for the combined company to challenge nVidia’s supremacy.

Anyway, it’s going to be a tough road ahead for the combined AMD and ATI. The said merger is said to be finalized by end of this year (Q4 ’06). Hopefully both the struggling #2 in their respective sector can pull through and form an “A-Team” that would transform the combined company’s fortune into one that is more competitive, as well as shape the path of the industry.

Related External Sites:
AMD & ATI: The Acquisition from all Points of View (AnandTech)
AMD to shell out $5.4 billion for ATI (News.com)
AMD+ATI: Imperfect Together (BusinessWeek.com)