Semiconductor designer Advanced Micro Devices Inc (AMD) on Tuesday said it has agreed buy Xilinx Inc in a $35 billion all-stock deal that will intensify its battle with Intel Corp in the data center chip market.
The deal, which AMD expects to close at the end of 2021, would create a combined firm with 13,000 engineers and a completely outsourced manufacturing strategy that relies heavily on Taiwan Semiconductor Manufacturing Co Ltd (TSMC). The two U.S. firms have benefited from a more nimble approach to grab market share from Intel, which has struggled with internal manufacturing.
AMD has long been Intel’s chief rival for central processor units (CPUs) in the personal computer business. Since Chief Executive Lisa Su took over AMD in 2014, she has focused on challenging Intel in the fast-growing business of data centers that power internet-based applications and services and are fuelling the rise of artificial intelligence and fifth-generation telecommunications networks.
Xilinx has also been working to penetrate data centers with programmable processors that help speed up specialized tasks such as compressing videos or providing digital encryption. Its primary rival in the area, Altera Corp, was scooped up by Intel for $16.7 billion in 2015 in what was then Intel’s largest-ever deal.
“There are some areas where we’re very strong, and we will be able to accelerate some of the adoption of the Xilinx product family,” Su told Reuters in an interview. “And there are some areas where (Xilinx CEO) Victor (Peng) is very strong, and we believe that we’ll be able to accelerate some of the AMD products into those markets.”
The tie-up comes at a time when Intel’s manufacturing technology has fallen years behind TSMC’s. AMD, which spun off its factories nearly a decade ago, has rocketed ahead of Intel with chips that perform better. The performance edge helped AMD gain its best market share since 2013 at slightly less than 20% of the CPU market, which has in turn pushed its shares up 68% between the start of the year and the close of trade on Oct. 26.
Xilinx also uses TSMC’s factories, called “fabs” in the industry, to make its chips, with both U.S. companies using modular designs that let them swap out different pieces of a chip to avoid bottlenecks or delays.
“We ended up with TSMC, and have stayed with them, not due to any contractual reason – we could go to any fab at any time – but because they are best-in-class,” Peng told Reuters in an interview. “It’s about the choices you make.”
Under the deal, Xilinx shareholders will receive about 1.7 shares of AMD common stock for each share of Xilinx common stock, valuing Xilinx at $143 per share, or about 24.8% higher than its $114.55 closing price on Oct. 26. AMD shareholders will own about 74% of the combined firm, with Xilinx shareholders owning the remaining 26%. The companies said the transaction was intended to be a tax-free reorganization for U.S. federal income tax purposes.
Xilinx’s Peng, however, said meetings between the two companies have already revealed they have very similar methods for designing chips.
“I’ll be honest, I don’t think it’s really as challenging as some other combinations,” he said. “I had one of my leadership teams who was not familiar with AMD say to me after a meeting, ‘Boy, they’re just like us.'” (Reporting by Stephen Nellis in San Francisco and Munsif Vengattil in Bengaluru; Editing by David Gregorio and Christopher Cushing)