What Does the Potential AMD-Xilinx Deal Mean for INTC & NVDA?

According to an article in the Wall Street Journal (WSJ), AMD is interested in acquiring Xilinx XLNX, a pioneer in field-programmable gate arrays (FPGAs), according to an article in the Wall Street Journal (WSJ).

According to the report, the two companies are in advanced talks and a deal could be closed as early as this week. The deal is valued at $ 30 billion, a 16% premium over the stock's closing price on October 8th. AMD shares fell 3.9% last Friday, according to the report, while Xilinx shares rose more than 14%.
Strategic Story: AMD Betting Big
AMD has strategically strengthened its presence in the microprocessor market vis-à-vis Intel INTC.

Despite its late arrival, AMD has earned the position of a major player in the microprocessor and graphics processor market. The company started out small, targeted the low-end segment and gradually built a position for itself. AMD had a tough time because of the strength and market position of its two main competitors, Intel and NVIDIA NVDA. While Intel still holds the top position in the microprocessor segment and has also noticeably improved its graphics capabilities, NVIDIA remains strong in the graphics market.
Price development since the beginning of the year

AMD combined its own technical talent with ATI's (acquired for $ 5.4 billion in cash and stock in 2006) to develop skills in both areas.

The company has come a long way since then. In fact, the power of 7-nanometer (nm) -based processors is expected to strengthen the company's competitive position in the retail and server market against Intel, which currently holds a Zacks Rank 3 (hold). The full list of today's Zacks # 1 Rank (Strong Buy) stocks can be found here.

In particular, the Intel chips use process technologies that were developed in-house. In the meantime, AMD is leveraging the Taiwan Semiconductor Manufacturing Company's TSM 7nm process technology to help bring the advanced 7nm chips to market faster.

Additionally, AMD aims to provide a "Zen 4" core architecture that is "currently under design" and uses advanced 5nm process technology. This is a major concern for Intel, which doesn't have to ship 7nm chips yet.

Intel noted a delay in process-based 7nm chips at its results conference in the second quarter. The company found a defect mode in the 7nm process that resulted in a deterioration in yield. This should favor AMD's market share and challenge Intel's dominance in the semiconductor market.
The FPGA bet adds one level to the battle
AMD's interest in Xilinx, which specializes in the manufacture of FPGA chips that are reprogrammable and used primarily in communications, data center, industrial and defense applications, should compete with Intel in the FPGA market tighten.

According to MarketsAndMarkets data, the global FPGA market is projected to reach $ 8.6 billion by 2025, down from $ 5.9 billion in 2020, with an annual growth rate of 7.6% between 2020 and 2025.

Intel entered the FPGA solutions space by acquiring Altera for $ 16.7 billion in 2015. Following the acquisition of Altera, Intel used its 14nm trigger transistor technology to develop high-end, high-performance, next-generation 14nm FPGA chips. Specifically, Microsoft MSFT selected Intel's FPGAs to support Bing's new intelligent search capabilities using real-time AI.

The semiconductor giant's investments in FPGAs for acceleration (drastically increasing performance with low power consumption) and memory to reduce latency and increase speed are helping it develop customized solutions for big players. In addition, the FPGA-focused eASIC acquisition in 2018 helps to strengthen the position in the network segment.
Synergies from the strength of the data center keep promises
Xilinx has made every effort to break into the data center market. In recent years, the company has launched several Alveo AI accelerator cards that it claims to offer high performance for data center applications, including real-time machine learning, video processing, genomics, and data analysis.

Xilinx's AlveoAI accelerators are considered to be as powerful as NVIDIA's data center graphics processors (GPUs). Hence, the buyout would also provide AMD with enough arsenal to compete with Intel and NVIDIA in the data center market.

AMD's strength in its second generation EPYC processors is helping AMD gain massive market share in the x86 server industry. Still, NVIDIA's acquisition of ARM Holdings could help the acquirer deliver a full-stack CPU-GPU offering, which is likely to be a headwind for AMD.

The bet on Xilinx makes sense as it will play a reciprocal role so that AMD can not only explore the rapidly growing FPGA space, but also strengthen its presence in the data center market that is affected by the coronavirus crisis-triggered cloud Computing benefits boom.
Analysis of Cash & Debt Dynamics
AMD, currently ranked 3rd in Zacks as of June 27, 2020, was $ 13.53 billion compared to $ 20.8 billion on March 28, 2020. Total debt was $ 13.53 billion as of March 28, 2020 June 27, 2020 was $ 38.35 billion compared to $ 39.92 billion on March 28, 2020.

In particular, total debt compared to total capital is 12.9%, well below the industry's value of 44.2%. In addition, the interest income is 10.6 times compared to the industry value of 4.8. The strong cash balance can help the company make strategic acquisitions and other investments in growth initiatives. Additionally, on September 11, AMD announced that Moody's Investors Service upgraded its senior unsecured loan rating to investment grade Baa3.

AMD is keen to take the pressure off its balance sheet, and it appears the company will opt for a cash and stock trade to continue the Xilinx acquisition should the rumors materialize.

With this in mind, it is worth taking a look at Xilinx's balance sheet. The company exited the first quarter of fiscal year ended June 27, 2020 with cash and short-term investments of approximately $ 3 billion compared to $ 2.27 billion in the previous quarter. The company's total long-term debt rose to $ 1.49 billion on June 27 from $ 747.1 million on March 28. This upswing reflects the $ 750 million senior debt issue in May.
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Microsoft Corporation (MSFT): Free Stock Research Report

NVIDIA Corporation (NVDA): Free Stock Analysis Report

Intel Corporation (INTC): Free Stock Analysis Report

Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report

Xilinx, Inc. (XLNX): Free Stock Analysis Report

Taiwan Semiconductor Manufacturing Company Ltd. (TSM): Report on Free Stock Analysis

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