AMD to buy chip peer Xilinx for $35 billion in data center push

By Stephen Nellis
(Reuters) - Semiconductor designer Advanced Micro Devices Inc (AMD) announced on Tuesday that it would buy Xilinx Inc as part of an all-stock deal worth $ 35 billion, fighting the battle with Intel Corp in the data center market Chips tightened.
The deal, which AMD is expected to close in late 2021, will create a combined company with 13,000 engineers and a fully outsourced manufacturing strategy heavily reliant on Taiwan Semiconductor Manufacturing Co Ltd (TSMC).
The two US companies have benefited from a more nimble approach to gaining market share from Intel, which is struggling with in-house manufacturing.
AMD has long been Intel's main competitor for central processing units (CPUs) in the personal computer business.
Since Chief Executive Lisa Su's acquisition of AMD in 2014, she has focused on challenging Intel in the fast-growing business of data centers that support Internet-based applications and services, and fuel the rise of artificial intelligence and fifth generation telecommunications networks.
Xilinx has also worked to infiltrate data centers with programmable processors to speed up special tasks such as compressing video or providing digital encryption. The main competitor in the region, Altera Corp., was won by Intel in 2015 for 16.7 billion US dollars as part of what was then Intel's largest Intel deal.
"There are a few areas where we are very strong and we will be able to accelerate the rollout of the Xilinx family of products," Su said in an interview with Reuters. "And there are some areas where (Xilinx CEO) Victor (Peng) is very strong and we believe we can accelerate some of the AMD products in those markets."
The connection comes at a time when Intel's manufacturing technology has lagged behind TSMC's by years. AMD, which spun off its factories nearly a decade ago, has shot ahead of Intel with chips that perform better. The performance advantage helped AMD achieve its best market share since 2013 at just under 20% of the CPU market, which in turn has increased its shares by 79% this year.
AMD shares fell 1.8% shortly after the market opened at 9:30 a.m. CET (1330 GMT), while Xilinx's shares rose nearly 12% after the two companies held a joint conference call on the deal.
Xilinx also uses TSMC's factories, known in the industry as "Fabs", to make its chips. Both US companies use modular designs that allow them to swap out different parts of a chip to avoid bottlenecks or delays.
"We ended up at TSMC and stayed with them, not for contractual reasons - we could go to a factory at any time - but because they are the best in their class," Peng said in an interview with Reuters. "It's about the choices you make."
Under the agreement, Xilinx shareholders will receive approximately 1.7 AMD common shares for each Xilinx common share, with Xilinx valued at $ 143 per share, based on a 10-day average for AMD stock prices through October 8 or approximately 24.8% AMD shareholders will own approximately 74% of the combined company, while Xilinx shareholders will own the remaining 26%.
AMD's Su will lead the combined company as chief executive, with Xilinx's Pil serving as president, responsible for the Xilinx business and strategic growth initiatives. Companies expect the deal to save $ 300 million in costs.
AMD also reported earnings earlier than planned on Tuesday. According to Refinitiv's IBES data, it posted sales and adjusted earnings of $ 2.80 billion and 41 cents per share, beating Wall Street's expectations of $ 2.57 billion and 36 cents per share.
Bernstein analyst Stacy Rasgon said there was a risk that a major acquisition in an adjacent chip market could distract AMD's leadership as Intel struggles to regain market share.
"The concern would be, AMD has this great story of its own that is just playing out. Why are you doing this now? Is it just opportunistic? Does it distract from the current story?" he said.
However, Peng of Xilinx said meetings between the two companies have already shown they have very similar methodologies for designing chips.
"I'll be honest, I don't think it's really as challenging as some other combinations," he said. "I had said to me after meeting one of my leadership teams who weren't familiar with AMD, 'Boy, they're just like us.'"

(Reporting by Stephen Nellis in San Francisco and Munsif Vengattil in Bengaluru; editing by David Gregorio, Anil D'Silva and Jonathan Oatis)

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