Tuesday, September 19, 2006

When potential kicks in, rather than $$$

Everyone (at least in the semiconductor field) knows this is already a done deal. Still, the In-Stat piece on "The High-Tech Deal of the Year: AMD Acquires ATI" sets me thinking deep. This is a case that might not make immediate sense in the financial books of the "buyer" (AMD, this case) since it carries a huge financial risk with the use of US$1.7b in cash and US$2.5b in debt. AMD has justified this cost by indicating that ATI will continue to improve AMD's competitiveness that every 1% of market share will result in US$300m in additional revenue. But this is no where near-term. AMD sure haaaaaates Intel more than Intel haaaaaates AMD. AMD is betting on ATI product portfolios and market presence, esp. in mobile PCs, core-logic chipsets, cellular, (Nintendo and Microsoft) game consoles and digital TVs, to fight its rival, Intel.

Sure, the supply chain that used to revolve around Intel and ATI is now broken. Wonder if Nvidia is really celebrating for the anticipated support by Intel in the market place? How is Intel going to fight back with its platform strategy ? A "disrupted" supply-chain as such, might also cause a backlash to foundries concerned. Before the acquisition, TSMC is the chipset foundry for ATI (ATI is one of TSMC's largest customers). Now, there might be a possibility that ATI chipsets be manufactured in an older AMD fab lines or through AMD's partnership with Chartered Semiconductor. So, this acquisition might even put a big smile on Chartered Semiconductor.

This is exciting. Let's wait and keep this in mind when we see the financials of affected companies/foundries in a few years time (I would say 2 years to evaluate the complete picture again).