AMD plans to acquire graphics chip-maker

July 25, 2006|By TERRIL YUE JONES | TERRIL YUE JONES,LOS ANGELES TIMES

SAN FRANCISCO -- Advanced Micro Devices Inc. said yesterday that it would buy Canadian graphics chip-maker ATI Technologies Inc. in a $5.4 billion deal designed to press recent gains against industry goliath Intel Corp.

The move expands AMD's offerings beyond the microprocessors that run computers to include a range of ancillary technologies that will enable the Sunnyvale, Calif., company to sell what are called computing platforms - basically, integrated systems that make computers better at such specialized tasks as playing games, editing video or surfing the Internet wirelessly.

Analysts said the acquisition, expected to close in the fourth quarter, is the biggest bet yet by AMD Chief Executive Officer Hector Ruiz as he tries to challenge the dominance of Intel, which has about 80 percent of the global semiconductor market.

"It definitely improves AMD's competitive position against Intel because now they can answer Intel's platform challenge with a platform challenge of their own," said Nathan Brookwood, principal analyst of the semiconductor consultancy Insight 64.

Under pressure from AMD, Intel is building its strategy around platforms such as Viiv for entertainment and Centrino for mobile computing.

Graphics cards such as those made by ATI are lucrative PC components that render images for computer games and video downloads on computers. Demand has grown as gamers expect high-end graphics and high-definition video proliferates on the Web.

"This is definitely a game-changing event, not only for our shareholders but for our customers, channel partners and end users," said Patrick Moorhouse, AMD's vice president of advanced marketing.

But investors signaled AMD faces challenges in making the deal pay off. AMD shares slid 87 cents, or 4.8 percent, to $17.39. Shares in ATI, based in Markham, Ontario, rose $3.11 to $19.67.

AMD planned to borrow about $2.5 billion and issue 57 million new shares to help pay for the purchase. The company had about $2.5 billion in cash at the end of June. The deal calls for ATI shareholders to receive $20.47 - $16.40 in cash and 0.2229 Advanced Micro shares - for each ATI share they own.

ATI posted 2005 sales of $2.2 billion, but Lau estimated that as much as $400 million of that came from Intel, which he predicted would disappear once AMD finishes the acquisition.

Terril Yue Jones writes for the Los Angeles Times.

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